In late 2002, Doug Leone walked into a Sequoia partnership meeting carrying a number nobody in the room wanted to see.
Sequoia Fund IX, raised in 1999 at the peak of the dot-com bubble, was underwater. Sequoia Fund X, raised in 2000 right at the top, was also underwater. The partners around the table had received carry distributions on these funds in 1999 and 2000. They had paid taxes on the distributions. They had spent some of the money.
Now, under the standard clawback provisions in their LP agreements, they were going to have to return all of it.
Some of the partners in the room owed more in clawback than their net worth.
Leone had spent fifteen years in rooms like this one with Don Valentine. He had absorbed the four-corner discipline. He had been told, more than once, that he was not fit to listen to founders. He had been promoted from one-tenth of Valentine's carry to equal partner. He had inherited the firm jointly with Mike Moritz in 1996, on the condition - never written down, never signed, but absolutely understood - that he would hand it over in better shape than he found it.
The math in the room said he was about to fail at that.
He didn't deliver a speech. He didn't lay out a recovery plan. He said one sentence.
"No one's going to lose money at Sequoia Capital. We're going to go to work."
They went to work for ten years.
The argument of Part II
In Part I, I argued that Sequoia is not a venture firm but a multi-generational franchise that happens to be currently expressed as a venture firm. The architectural decisions Don Valentine made in 1972 (naming the firm after the tree, refusing the founder paydown at the 1996 succession, voluntarily equalizing his own carry with the next generation) were the load-bearing structure that made everything else possible.
But the brand everyone now associates with Sequoia - the firm that doesn't lose money, the firm that backs founders for fifty years - wasn't built by Valentine.
It was built by Mike Moritz, Doug Leone, Mark Stevens, and other partners in the decade 2002 to 2012.
This second generation of the Sequoia partnership went through periods of excess and pain, and the defining moments from this vintage came in response to the popping of the dot-com bubble. The partnership decisions made in a moment of weakness would go on to define the next two decades of strength for the firm.
The rest of this piece is for paid subscribers.
Below the paywall:
What Moritz, Leone and Stevens actually inherited from Valentine
The October 1999 Google check
The math problem the partnership faced in 2002
The decade of pain it took to make the LPs whole
The geographic expansion
The arrival of the next generation of stewards
The Scout Program
The 2012 handoff
One more thing: Our friend Laurie Owen from Refinery is publishing the first VC marketing benchmarking survey. It should take 8-10 minutes to complete, and everyone who submits gets early access to the full benchmarking report before it goes public.
If you work in VC marketing, platform, or comms, this one’s for you.
Together with Rings AI
VCs lose hours a week and miss opportunities by stitching together legacy tools for relationships, processes, email and knowledge management.
Backed by Founders Fund, Rings AI was built by a former top-decile VC to consolidate the front-of-house stack for venture capitalists. In one platform, CRM, sourcing, process tracking, email and knowledge management combine and talk to each other.
Beyond simply consolidation, proactive AI catches tasks for you, preps you for meetings and maps out your relationship paths across the market.
