A Conversation with Alfred Lin, Partner, Sequoia Capital

 

Alfred Lin has had an extraordinary career built on the front-line of customer led businesses.  He is perhaps best-known for his role as COO and Chairman of Zapoos.com (which he built with his Harvard friend, Tony Hsieh) alongside which he has actively invested in companies such as Uber and Flipboard.

Alfred now co-leads Sequoia Capital’s US venture business where he represents investments including Airbnb, DoorDash, Houzz, Humble Bundle, Kiwi, Stella & Dot and Zipline.  Since 1972, Sequoia Capital have partnered early and at every stage of growth with the founders of companies that now have an aggregate, public market value of over $3.3 trillion.  Some of the firm’s most successful investments have been Apple, Google, Oracle, PayPal, Stripe, YouTube, Instagram, Yahoo! and WhatsApp.

I caught up with Alfred to learn more about entrepreneurship and investment.

Q: How did entrepreneurship and investment come into your life?

[Alfred Lin] Growing up, I was always interested in how businesses scale. How do they get customers? How do they make their products? How do they make money? My parents were bankers and they talked about how financing helps them grow their businesses. As a teenager, I had a paper route and a landscaping service for our block. I didn’t see much leverage in that. So I gathered the customers in the neighbourhood and sold off the contracts to classmates.

Tony Hsieh likes to tell the story that in college I went downstairs to his pizza business and bought pizza pies and then went upstairs and sold it by the slice to my roommates. It isn’t as predatory as it sounds. I simply wanted to get by money back, but quarters were a prized commodity for laundry, vending machines and arcade games, so I found that sometimes a quarter is worth more than a quarter.

Q: What are the characteristics of great entrepreneurs?

[Alfred Lin] Great founders such as Brian Chesky of Airbnb, Drew Houston of Dropbox, or Adi Tatarko of Houzz, are all on a mission to build a product or service that corrects something that they believe the world got wrong. They are on a mission to correct a personal problem or personal pain. They are incredibly hard working, brutally intellectually honest, and insanely curious. They are outsiders to the industry they disrupt.

Our partner Michael Moritz also wrote the following to describe great entrepreneurs: The creative spirits. The underdogs. The resolute. The determined. The outsiders. The defiant. The independent thinkers. The fighters and the true believers. These are the founders with whom we partner. They’re extremely rare. And we’re ecstatic when we find them.

Q: What are the characteristics of great investors?

[Alfred Lin] At Sequoia, we don’t think about what makes a great investor. From idea to IPO and beyond, we want to be great business partners to the founders we back. We don’t think about buying low or selling high. We measure our success by helping our founders build enduring franchises and category kings and by being the first call by our founders when they need bespoke and prescient advice.

On our website, our ethos mentions: Our team mirrors the founders with whom we partner: hungry overachievers with a deep-rooted need to win. Many come from humble backgrounds. Many are immigrants. Many formed or built companies of their own before joining Sequoia. Each shares the mindset of an entrepreneur, and knows what it means to walk that path.

Q: How does venture capital play a role in the entrepreneurship journey?

[Alfred Lin] At Sequoia, we have a very simple answer to this question. We help the daring build legendary companies. Our style is not for everyone. We push when we see potential. We are direct. Some don’t like our approach. Most who know us do. That’s our answer, which can be very different to how others might describe the role of venture capital.

Q: What makes a business investable?

[Alfred Lin] The simple, but not useful, answer is that an investable business will generate a rate of return higher than your hurdle rate. The more complicated answer is that we all look for a great founding team that has some unique insight for a better product or service that address a fast growing and large market. We seek to build an enduring franchise with those raw ingredients.

Q: What is making the eCommerce sector so exciting at the moment?

[Alfred Lin] eCommerce has broadened to Commerce and have extended to on-demand companies. It is not necessarily a particularly exciting investment area. Most of the time, investors have hated this category as commerce businesses are hard to scale, have high capital needs, and retaining customers is tough. It has heated up because of recent successful acquisitions such as Jet, Dollar Shave Club, IT Cosmetics, etc.

In general, commerce business address rather large markets, but because these business operate in large markets, they also attract lots of competition. Competition is great for consumers, but nothing destroys enterprise value faster than intense competition. To succeed in commerce, you need a great operating team focused on the nitty gritty details of the business.

Q: What sectors are exciting you at the moment-and where do you think is overhyped?

[Alfred Lin] Either as a startup founder or a venture capital investor, you should not care about what others believe to be exciting or overhyped. Do your own primary research and make up your own mind. If you are going to found or invest in a startup, there is a high likelihood your company will go through cycles of being loved and hated on the long journey ahead.

We remain interested broadly from consumer businesses to enterprise businesses. Today, several new frontiers for innovation are developing, which span everything from artificial intelligence to crypto-currencies, from AR/VR to containerization of servers, and from autonomous vehicles to CRISPR/Cas9. Also, previously technology companies such as Oracle or Salesforce made existing businesses more efficient, today’s upstarts are leveraging technology to take over those industries themselves, as evidenced by success of Airbnb in travel, Uber in transportation, and Tesla in automobiles.

Q: How does the founder (and founding team) have to change in a VC backed company?

[Alfred Lin] When we invest, we make it clear to the founder(s), we are not interesting in creating a nice lifestyle business. We are looking to build an independent enduring franchise on our way to building a category king. If we are not aligned on that point, you should not take our money. Everything else that has to change can be figured out along the way, so long as we are aligned on that point.

Q: What do VC’s look for in the geography of where a business is based?

[Alfred Lin] Today, you can start a great business anywhere in the world. However, we have an internal motto: think globally and act locally. Unfortunately, venture capital remains a local business. Your first recruits will be local. Your first customers will be local. Your network is strongest in your local area. Despite how interconnected the world is, we can help startups the most when they are within driving distance of our offices.

Q: What are your views on mental health and the entrepreneur’s journey?

[Alfred Lin] The entrepreneurial journey is long and hard. It is also lonely, because you can’t necessarily share your struggles. It helps to have a cofounder or two. Have a group of founders you are able to share and learn from each other. Raise money from investors you trust, so you can share your struggles with them. Be wary of support groups that are just purely optimistic cheerleaders. As Admiral Scottsdale said in Good to Great, “You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

Q: Your best and worst investments?

[Alfred Lin] The answer may surprise you.

The best investment by definition is the one that generated the highest IRR or highest cash on cash return. That investment is great for your public reputation, but the best investments for your soul are the companies that wouldn’t have existed without Sequoia, where we take pride working alongside our founder(s) and their management team to create an unimaginable outcome despite all the obstacles. Where the company thanks us at their exit because we all rolled up our sleeves to make it happen. They also lead to our best founder references.

Similarly, the worst investment by definition is the one you lost the most amount of money. Ironically, these investments might have short-term media coverage stating you are the dumbest investor on earth to have created such a large crater in the ground, but people tend to have short memories. The worst investments for your soul are the successful enduring companies that you took seriously but you decided not to make the investment. Even investor has their anti-portfolio that they agonize over time and time again.


Recent Articles

A Conversation with Slack Co-Founder, Stewart Butterfield
Slack launched in 2014 and has become the fastest growing business application in history- allowing millions of people in tens of thousands of organisations around the world to get work done. I caught up with Slack Co-Founder, Stewart Butterfield to learn more about his entrepreneurship journey, and the...
A Conversation with Alfred Lin, Partner, Sequoia Capital
My conversation with Alfred Lin, Partner at Sequoia Capital- who have partnered early and at every stage of growth with the founders of companies that now have an aggregate, public market value of over $3.3 trillion.  Some of the firm’s most successful investments have been Apple, Google, Oracle, PayPal,...
A Conversation with Sheryl Sandberg on Resilience
Sheryl Sandberg is a remarkable person.  Alongside leading a $500 billion business, with 24,000 employees and 2 billion monthly active users, she has mobilised millions of women around the world to achieve their ambitions and fight for a more gender equal society.  Sheryl’s own story of resilience came to...

Speaker