Sequoia’s Roelof Botha warns founders against chasing high valuations as the company doubles down on its selective approach.

The Trump administration has begun to acquire direct stakes in American companies, not as temporary measures to confront the crisis, as happened in 2008, but rather as permanent constants of industrial policy.

These moves raise interesting questions, including what happens when the White House shows up on your cap table.

At the TechCrunch Disrupt conference in San Francisco last week, Roelof Botha, a global leader at Sequoia Capital, answered precisely this query, and his response elicited a sharp laugh from the packed audience: “One of the most dangerous words in the world is: I’m from the government, and I’m here to help.”

Botha, who describes himself as “a sort of inherently libertarian free-market thinker,” acknowledged that industrial policy has its place when national interests demand it. “The only reason the United States would do this is because we have other nation-states that we compete with and that are using industrial policy to promote their industries that are strategic and potentially conflicting with long-term interests of the United States.” In other words, China is playing the game, so the United States should play with it.

However, his discomfort with the government as a co-investor was evident during his appearances. This caution extends beyond Washington. Indeed, Botha sees troubling echoes of the pandemic-era finance circus in today’s market, though he stops short of using the word “bubble” on stage. “I think we are in a period of incredible acceleration,” he offered more diplomatically, while also warning against value inflation.

He told the audience that on the morning of his appearance, Sequoia had questioned information about a portfolio company that had risen from $150 million to $6 billion in twelve months during 2021, but had crashed back to the ground. “The challenge within the company for the founders and the team is that you feel like you’re on this path, and then you end up having success, but it’s not quite as good as you hoped at some point.”

It’s tempting to keep raising money to maintain momentum, he continued, but the faster the valuation goes up, the harder it is to go down, and nothing demoralizes a team quite like watching a paper fortune evaporate.

His advice to founders navigating these frothy waters was twofold: If you don’t need to raise money for at least twelve months, don’t do it. “You might be better off building, because your company will be worth much more 12 months from now,” he said. On the other hand, he added, if you have six months of need for capital, raise money now while the money is flowing, because markets like the one we are in can deteriorate quickly.

Being the type of person who studied Latin in high school (his words), Botta turned to classical mythology to make the point. “I read the story of Daedalus and Icarus in Latin. It stuck with me, the idea that if you fly too hard and too fast, your wings might melt off.”

When founders hear Botha’s take on the market, they take heed, and understandably so. The company’s portfolio includes early bets on Nvidia, Apple, Google and Palo Alto Networks. Botha also kicked off his Disrupt appearance with news about Sequoia’s Two of the latest investment vehiclesSeed and new venture funds that give the company an additional $950 million to invest are “the same size as the funds we launched six or seven years ago,” Botha said on stage.

Although Sequoia Changed its box structure In 2021 in order to hold overall stock for longer periods, Botha explained that it is still an early stage store at its core. Over the past 12 months, Sequoia has invested in 20 seed-stage companies, nine of them at seeding, he said. “There’s nothing more exciting than partnering with founders at the start.” He continued that sequoias are “more mammals than reptiles.” “We don’t lay 100 eggs and see what happens. We have a small number of offspring, like mammals, and then we need to give them a lot of attention.”

He said it was a strategy rooted in experience. “In the last 20 to 25 years, 50% of the time we have made a seed or venture investment, we have failed to fully recover the capital, which is modest.” After his first complete write-off, Botha said he cried in a meeting with partners out of shame and embarrassment. “But unfortunately, that’s part of what we have to do to achieve outliers.”

What explains Sequoia’s success? After all, a lot of companies invest in seed-stage companies. Botha partly credited a decision-making process that surprised him even when he joined two decades ago: Every investment requires partnership consensus, where each partner’s voice carries equal weight regardless of their position or title.

He explained that the company begins partner meetings every Monday with an anonymous poll to highlight a range of opinions on the materials that partners are asked to absorb over the weekend. Side conversations are prohibited. “The last thing you want is to form alliances,” Botha said. “Our goal is to make great investment decisions.”

The process can test patience – Botha once spent six months lobbying partners over a single growth investment – ​​but he is convinced it is necessary. “No one, not even me, can force investment through our partnership.”

Despite Sequoia’s success, or perhaps because of it, Botha’s most provocative position is that venture capital is not really an asset class, or at least, should not be treated as such. “If we take out the top 20 or so companies from the industry results, we (as an industry) have actually underperformed investing in an index fund,” he said flatly on stage. He pointed out that there are 3,000 investment companies now operating in America alone, which is three times the number when Botha joined Sequoia. “Pumping more money into Silicon Valley does not lead to more great companies,” he said. “It actually dilutes that. It actually makes it harder for us to make the small number of private companies thrive.”

The solution, in his view, is: stay small, focus, and remember that “there are only a few companies that matter.” It’s a philosophy that has served Sequoia for decades. And at the moment when Uncle Sam wants your cap table and venture capitalists are throwing money at anything that moves, this may be the most contradictory advice ever.