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Some Surprising Reasons Why Sequoia Wins At The VC Game

Posted by Dharmesh Shah on March 11, 2011 in venture capital 9 Comments

The following is a guest post by Brian Halligan, my co-founder at HubSpot.  It's not usually his style to lavish such gushing praise.

As many of you know by now, HubSpot just closed our Series D round led by Sequoia Capital with participation from Google Ventures and Salesforce.com.  I got a chance to work closely with Sequoia over the last two months and have thought a bit about how and why they are the top dog in the venture business and came up with 9 reasons.  At least a couple of them might surprise you.

sequoia logo small

1.  Brand:  Since they funded companies like Apple, Cisco, Google and Yahoo, they have the best “brand” in the business.  Because of this, nearly every aspiring entrepreneur pitches Sequoia (or would like to) in hopes of having some of that brand rub off on them.  This gives Sequoia a first crack at many of the best deals. 

2.  Know-how:  Since they funded all those great companies and sat on their boards, they have learned a ton about how to build great businesses and they are not shy about passing those lessons on to their current portfolio.  No doubt, other venture firms have made great investments, but Sequoia’s portfolio is particularly remarkable.

3.  Talent pool:  Since they funded all those great companies for so many years, many of their key employees have gone on to do other new startups and Sequoia is in the front seat for when those deals happen.  In addition, that network of talent is highly valuable for them in seeding their new companies with talented employees and board members.

4.  Hard work:  Yes, it sounds corny, but it’s true.  The lead on our deal was Jim Goetz – we spoke almost every day and usually had a call or two on weekends.  The second was Pat Grady.  My favorite Pat story was about halfway through the due diligence when we were trying to find a time to connect him with some of our folks and he suggested 7am EST.  Our team was concerned that one or two of our folks wouldn’t be available at 7 am.  The interesting part was that Pat lives in San Francisco and we are in Boston, so it was 4am his time.  The 4am slot wasn’t an issue at all for him as he was up at that time working every day anyway.

5.  Aggressive:  They are more aggressive than other VCs.  When I first met Jim Goetz, the second sentence he said to me after “nice to meet you” was “what’s it going to take for Sequoia to own a piece of HubSpot?”  That’s how you make a first impression on an entrepreneur!  At the time, we were planning on raising debt, but the advantages Sequoia has around network, brand, and talent lured me in.

6.  Reasonable:  As you might imagine with a complicated deal like the one we did with 3 new investors and 3 existing investors, there was a lot to talk about as part of the deal.  Sequoia was tough, but reasonable to deal with. 

7.  Agile:  Sequoia’s deal process felt a bit like our agile product development process.  Everything was pretty late-binding, but came together nicely at the last minute.  For example, for their visit to Boston, we didn’t really nail down the schedule until the night before.  I’m not sure why they did it this way, but I suspect they are gathering lots of due diligence and want to make sure they have as much information in place before they nail things down.  They trade off the false comfort of being organized early for relative discomfort of being organized late.

8.  Paranoid:  In talking with them, it is near impossible to get any of them to brag about any of their high profile investments/exits.  Rather, they seem to be constantly hand-wringing about the ones that got away and the ones that might be going on right now that they could miss.  Its almost like the firm is more motivated by fear of failure than of success itself.

9.  Chinese Firewalls:  They had looked at a few other deals in the marketing space, but were closed-lipped about anything they had learned.  This demonstrates respect for the entrepreneurs they work with – even the ones they don’t fund. 

I found the whole process to be fascinating.  I’ve always admired Sequoia’s success, but it was great to experience first-hand why they’ve been successful.