Investing with the Best, Founder-Problem Fit, Pre-Mortems and Pre-Parades, and More — Roelof Botha

Tim Ferriss interviews Sequoia Capital's Roelof Botha about the habits and mental models behind his investing career. Botha traces his path from an Afrikaans upbringing in South Africa (grandson of a prominent apartheid-era-turned-reform foreign secretary) through actuarial science, McKinsey, Stanford, and PayPal to Sequoia. He explains practices like writing goals where he'll see them (the Ulysses pact), pre-mortems and pre-parades, the 'founder problem fit' he looks for, and why venture returns follow a power law. He shares painful failures (a $10M write-off that made him cry, missing the Twitter Series A) and how Sequoia's team culture, changing one's mind, and long-term holding via the new Sequoia Capital Fund shape decisions. The conversation closes on his billboard message: dare to dream and take many at-bats.

• Botha wrote 10 to the 9th power (one billion dollars in gains) in the corner of his Sequoia notepad each week as a reminder of the goal he needed to hit to make it as a partner; he now thinks the target should be 10 to the 10th.
  00:01:32
• Sequoia founder Don Valentine told Botha there's a two-by-two matrix of people you invest in (exceptional vs. not, easy vs. hard to get along with) and the job is figuring out which quadrant makes money; the answer is exceptional and not-so-easy-to-get-along-with founders.
  00:16:35
• The pre-mortem/pre-parade technique came from Larry Summers (a Square board member); Sequoia now writes both for every investment memo and even ran a '2030 autopsy of Sequoia Capital' at strategy offsites.
  00:23:49
• Sequoia launched an open-ended Sequoia Capital Fund to break the standard 10-year closed-end model, because most of their public companies' market cap accrued after IPO; 95% of eligible LP dollars rolled into it.
  00:40:16
• Sequoia's returns follow a power law: about a third of companies fail to return capital, and roughly 5 to 15 percent of investments account for over 80 percent of returns.
  00:49:01
• Botha's first investment that went to zero was a $10 million complete write-off; he literally cried in the partner meeting from shame, and senior partners' support kept him from becoming overly risk-averse.
  01:34:34
• Missing Twitter's 2007 Series A (and the B and C) was his most painful 'sin of omission'; he blames a sunk-cost fallacy and failure to revisit assumptions rather than the original pass.
  01:35:37
• His billboard message is 'dare to dream,' rooted in Peter Thiel's point about repeat games: careers offer many at-bats, so take low-probability, interesting chances instead of playing safe.
  01:57:48

• When Botha was at PayPal in 2000, only about 200 million people on the planet had internet access, the vast majority on dial-up, and broadband hadn't yet reached 50% of the US when he joined Sequoia in 2003.
  00:03:36
• UCT professor Robert Dorrington's line that actuaries are trained to think 30 years into the future while accountants think a year in arrears; Botha credits actuarial training for spotting PayPal's fraud problem months before others.
  00:11:23
• Sequoia made a $1M seed investment in Natera in 2006 based on founder Matthew Rabinowitz's authentic motivation after his sister's newborn died; the company now delivers millions of prenatal tests, and Botha is still on the board 15 years later.
  00:20:11
• Don Valentine had exclusive use of green ink at Sequoia (no one else could use a green pen) and would put maybe 10 words on a full page of feedback.
  00:22:15
• Companies Sequoia backed while private account for over 25% of the total value of the Nasdaq.
  00:33:06
• At Square's IPO, Sequoia's LP gain was about $140-150 million, but by holding for several years it generated well north of $1 billion for LPs.
  00:47:30
• Botha drove around Los Altos with bags stealing mulberry leaves to feed thousands of silkworms his kids raised after their single tree couldn't keep up.
  01:09:40
• Botha was knocked unconscious by a spear tackle playing rugby for Stanford, woke up two hours later in a CT scanner, and quit the sport after months of headaches, but can now snowboard up to about 60 mph.
  01:12:47
• During research for 'The 4-Hour Body,' Tim Ferriss tested with Prof. Tim Noakes at the South African Sports Science Institute and a muscle biopsy showed his enzyme levels were 'worse than Homer Simpson.'
  01:13:18
• Sequoia's data-science system 'Early Bird,' pioneered by partner Jim Goetz, surfaced WhatsApp's overseas growth (driven by per-SMS carrier pricing) before anyone in Silicon Valley was using it.
  01:56:15