By Sarah McBride
SAN FRANCISCO Feb 20 Shortly after moving to
Silicon Valley in 2004, the young Facebook founder Mark
Zuckerberg pulled a prank on Sequoia Capital by making an
investment pitch in his pajamas.
The discussion never got serious and Sequoia never invested
in Facebook. But now, Sequoia is getting the last laugh.
With the sale of its protégé company message service
WhatsApp to Zuckerberg's Facebook for $19 billion, Sequoia found
a way to make money from Facebook as well as solidifying its
position as a titan of venture capital.
And it establishes partner Jim Goetz, who landed the deal,
as one of Silicon Valley's top rainmakers.
"This would make a lot more founders want to work with Jim
Goetz," said Sam Altman, a partner at Y Combinator, a program
for startup companies whose previous startup was backed by
In a business where top firms come and go, Sequoia has
proved remarkably tenacious. Its big wins take on particular
significance in an era when venture firms must beat back
challenges from individual investors known as "angels" and
crowdfunding, new technology that makes early-stage investments
less crucial than they once were, and critics who say that
venture capital investments aren't worth the trouble.
Facebook announced the acquisition deal on Thursday,
astounding many with the price it paid for the service, which
has 450 million users and is growing at 1 million a day.
Sequoia, which invested $60 million and made around $3
billion from WhatsApp, according to a source familiar with the
situation, has squeezed a considerable sum out of Facebook
, even if it never did invest in the social-media
behemoth. Sequoia also backed photo-sharing service Instagram,
which Facebook bought in 2012 for $1.01 billion.
The biggest venture investor in Facebook, Accel Partners,
held $7.64 billion worth of Facebook shares at the time of that
company's 2012 initial public offering (IPO).
Launched in 1972 by Don Valentine, a founder of National
Semiconductor, Sequoia was one of the nation's earliest
venture-capital firms. As most others of the earlier generation
faded from the scene, Sequoia held its own, going on to fund
companies including Apple Inc, Oracle Corp,
Paypal and Google Inc.
Today, it is involved with many of the hottest startups,
including accommodation service Airbnb, file-sharing service
Dropbox, invitation service Eventbrite, and stereo and bluetooth
headset maker Jawbone.
"We were so excited to meet with them," said David Rusenko,
co-founder of web-hosting service Weebly, recalling his early
interactions with Sequoia before the firm invested in his
company three years ago. "Sequoia is the gold standard, as far
as we were concerned."
Of course, not everyone holds that view. Silicon Valley
impresario Sean Parker, for example, blamed Sequoia for
contributing to the downfall of his online-address book company,
Plaxo, after he was forced out. Others complain the company is
too hard-nosed when it comes to negotiating. And it has missed
out on some big success stories, such as Twitter.
But among start-ups, the firm holds a reputation for being
ahead of the curve. For example, Sequoia nudged its portfolio
companies to embrace mobile more forcefully and earlier than
other venture firms, Rusenko said.
Founders also like its commitment.
"We're building Stripe for the long term," said John
Collison, co-founder of payments-company Stripe, another
portfolio company. Sequoia's habit of taking a long-term view,
including holding stock post-IPO, was one of the factors that
attracted him and his co-founder, he said.
Founders say that Sequoia, based on Silicon Valley's
legendary Sand Hill Road, is adept at competing with other
venture capitalists when a start-up is seeking funds. It also
excels at courting promising companies that believe they don't
need cash and persuading them to take it - like WhatsApp, whose
founders weren't actively seeking funding.
"The notion of them marching up and down Sand Hill with a
Powerpoint deck is comical," said Goetz, referring to WhatsApp
founders Jan Koum and Brian Acton. He had cultivated them since
2010 before closing Sequoia's first investment the following
Goetz, who holds a master's degree in computer systems from
Stanford, co-founded health company VitalSigns, providing the
type of first-hand company-building experience that start-up
In keeping with the firm's more discreet ethos, he holds a
low profile compared with partners at other venture firms, or
even Sequoia's own star partner, Mike Moritz. He rarely speaks
at conferences, refrains from blogging, and has sent out just
180 tweets. But people who have worked with him say he speaks
with quiet authority.
"He clearly was the most intelligent about our market, and
had done better research," recalled Jive Software
co-founder Matt Tucker about the days Goetz was courting him.
After Sequoia first invested in Jive in 2007, Goetz took
Tucker along to a board meeting at fellow portfolio company Palo
Alto Networks so he could learn how other companies
handled those events. Goetz bought good wine to mark company
milestones, invited Tucker and CEO Tony Zingale to parties at
his home, and showed an interest in their lives outside work -
but stayed focused on the business.
"In no way would you confuse Jim as a tender-hearted cuddly
bear," Tucker said.
The venture-capital industry has come under fire for
lackluster returns at all except a small group of top firms. As
results have disappointed, venture capital firms have raised
less money, just $16.7 billion last year compared with $25.93
billion in 2008, according to the National Venture Capital
Sequoia is part of an elite group of funds whose results
stand out from the pack, investors say. It can raise money for
each of its venture funds in a matter of days, with so many
existing investors clamoring to reinvest that there is little
room for new ones.
Last year, it raised $1.17 billion for three funds,
including $533 million for its flagship Sequoia Capital XIV,
according to regulatory filings.
Its popularity endures as other parts of the venture
business are competing with new sources of funding, such as
platforms that make it easy for rich individuals to make "angel"
or early stage investments. Meanwhile, because the cost of so
much technology, such as servers, has dropped drastically in
recent years, many start-up founders can build their companies
to sizeable levels without the need to turn to venture backers.