It was a brilliant idea. It allowed Sequoia to keep tabs on entrepreneurs — and nascent technologies — not yet in its universe. It cemented the firm’s ties to the founders who were already in its family. Not last, it grew Sequoia’s already considerable influence in Silicon Valley. Fast forward, and the ripple effects of […]
Ten years ago, Sequoia Capital began quietly encouraging founders of its portfolio companies to consider which of their founder friends they might like to get behind financially. Sequoia would let them write checks to those companies, and it would share with them any later rewards.
It was a brilliant idea. It allowed Sequoia to keep tabs on entrepreneurs — and nascent technologies — not yet in its universe. It cemented the firm’s ties to the founders who were already in its family. Not last, it grew Sequoia’s already considerable influence in Silicon Valley.
Fast forward, and the ripple effects of the highly successful program have not only been wide-reaching, but they’ve quietly reshaped the industry in ways that only those closest to Sequoia have been able to fully appreciate — until now.
To learn more on the tenth anniversary of Sequoia’s “scouts” initiative — which has since been widely copied by other venture firms — we reached out to Sequoia’s Mike Vernal, the partner who today oversees the program, as well as four scouts whose names you will recognize. What we learned in the process is that their experiences, while fairly different, have had an outsize impact on the way they lead as well, as on the founders whose paths have crossed with their own.
Ready, set. . .
It began working almost immediately, too. Among those first scouts — one of now hundreds to work with Sequoia — was Jason Calacanis, a serial entrepreneur whose then startup, a search engine called Mahalo, quickly raised $20 million from Sequoia and others after its 2007 founding.
Mahalo didn’t wind up putting Google or Yahoo out of business, but even back then, Calacanis, who’d earlier sold a blog network to AOL, had an established network that Sequoia realized was valuable. As Calacanis tells it, he’d told Sequoia about Zynga when its founder, Mark Pincus, was still figuring out the company in 2007. He’d also told Sequoia about a project that his friend Ev Williams was fiddling with. Both times, it passed.
Those decisions seemed to smart. At least, not long after, Sequoia’s Roelof Botha reached out to Calacanis and asked him, “‘What if we’d just given you some money to make those investments?’”
According to Calacanis, Botha explained that if he could turn up other interesting deals, Sequoia would give him money to invest, then split some of the profits with him and other Sequoia-backed founders who it was also inviting to scout deals on its behalf. (One of them was Sam Altman, then the founder of another Sequoia-backed startup called Loopt. Other early scouts included Airbnb CEO Brian Chesky, and Dropbox founders Arash Ferdowsi and Drew Houston.)
Calacanis loved the proposal, though he chafed at Botha’s insistence that he write an investment memo. As pushback, Calacanis says his first deal memo as a scout included two words, “Cabs suck.”
Calacanis laughs about it now. “I was protesting the fact that Roelof was making me do homework.” As it turns out, his short memo was spot on. The company Calacanis wanted to back was Uber. Sequoia approved it, and the small stake ultimately grew to be valued at “over nine figures,” according to Calacanis, who has collectively plugged $600,000 into 20 startups over the years as part of Sequoia’s scouts program.
From scout to VC . .
As industry watchers may know, Calacanis has since gone on to raise his own funds, including two $10 million vehicles, and, more recently, a $30 million fund. Yet he’s far from the only person to learn the ropes with Sequoia’s help.
Altman, of course, went on to advise Y Combinator companies, then to become the organization’s president, before resigning earlier this year. Other former scouts who have joined the world of venture capital full-time include Lee Linden of Quiet Capital, David Ulevitch of Andreessen Horowitz, Jana Messerschmidt of Lightspeed Venture Partners, Cat Lee of Maveron, and Deep Nishar of SoftBank Investment Advisors.
Three other former scouts have landed inside of Sequoia itself: Vernal, who before joining Sequoia spent more than eight years at Facebook, including as a vice president of engineering and product; Jess Lee, who previously cofounded the shopping site Polyvore and oversaw its sale to Yahoo; and Alfred Lin, the former COO and chairman of Zappos.
