1. Sequoia Capital is a 40-year-old venture capital firm that has invested in over 820 companies, including 150 IPOs and 150 acquisitions. 2. When evaluating startups, Sequoia looks for companies addressing large, disruptive markets; with unique, differentiated products that deeply alleviate customer pain; and exceptional founding teams focused on product excellence. 3. Sequoia advises startups to think ambitiously about market and company potential but to start small with minimal headcount, spending, and time to market in order to maximize efficiency and focus.

1. Think Big
But Start Small
Mike Goguen
Managing Partner
Sequoia Capital

2. Topics
1. Sequoia Capital Snapshot
2. What We Look For In A Startup

3. SEQUOIA CAPITAL
• 40 year old Venture Capital firm
• US, China, India, Israel
• Seed, Venture, Growth
• 820+ companies
• 150+ IPOs, 150+ M&As

4. Humble Beginnings
Steve & Steve Trip Sandy & Len

5. Humble Beginnings
Jerry & David Larry & Sergey Steve Chad Jawed

6. Humble Beginnings
Brian, Joe & Nathan Reid & Jeff Drew & Arash

7. To Household Names
> $500B Market Cap Created

8. Our Investment Ecosystem
Energy/Cleantech Alternative, Conventional, Efficiency, Storage
Financial Services Banking, Brokerage, Payments
Healthcare Services Diagnostics, Drugs, Labs, Patient Care, Product Development
Internet Advertising, Communications, e-Com, Gaming, Media, Search, Social
Mobile Apps, Communications, Devices, Gaming, Monetization
Technology Infrastructure, Data, Open Source, Saas, Security, Semi, Services, Storage

9. Yesterday

10. Today

11. Elements of a Sustainable Company
✔ Clarity of purpose
✔ Spectacular market
✔ Alleviate customer pain
✔ Team DNA
✔ Incredible product focus
✔ Real operating margins
✔ Frugality
✔ Inferno with a single match

12. What We Look For In A Plan
1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING
CLEAR, CONCISE, ABOVE THE NOISE; CUSTOMER
VALIDATION?
2. EXPLOSIVE MARKET SECTORS, FULL OF DISCONTINUITIES
AMBIGUITY AND CONFUSION ARE GOOD. HOW BIG?
DEFINING? STRUCTURE/ACCESSIBILITY? READINESS?
DISCONTINUITY—WHAT’S DIFFERENT? VALUE CAPTURE
POTENTIAL? NO COMPETITION – OFTEN NO MARKET;
ENTRENCHED PLAYERS: INNOVATOR’S DILEMMA? STARTUPS:
HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION?
3. BREAKTHROUGH PRODUCTS/TECHNOLOGY
SOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER
OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY?
COMPLETENESS? DEFENSIBILITY?
4. DEFINING TEAMS
MAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA
BLEND? SCAR TISSUE?
5. CAPITAL EFFICIENCY
WHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS
MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE
ASSUMPTIONS?

13. One Revealing Metric: GROSS MARGIN
Sustainable Companies = High Gross Margins (usually > 60%)
High Gross Margins imply:
• Real customer pain
• Differentiated product / strong IP
• Lower cash requirements
• Higher growth potential
• Higher profitability potential

14. Founder Attributes We Look For
Very sharp, scrappy, frugal
Obsessively driven, inquisitive, never satisfied
Fixated on ―thrilling‖ customers
Metric focused, always iterating and improving
Not distracted by ego or title envy
Not necessarily ―experienced‖

15. Startups Need Stealth, Speed and Focus

16. Focus & Alignment
market pain
strongest differentiation
applying the best people
taking the most risk

17. Ups and Downs
S&P DECLINE 1973 – 74 43% 1980 – 82 17% 1987 30%
1973 1975 1977 1979 1981 1983 1985 1987
ATARI TANDEM APPLE AMCC LINEAR TECH ORACLE CISCO
LSI LOGIC SYMANTEC
3COM EA
1990 15% 1998 15% 2000-02 44%
1989 1991 1993 1995 1997 1999
MICROCHIP ARBOR FLEXTRONCIS YAHOO! REDBACK PAYPAL GOOGLE
DOCUMENTUM NVIDIA NETAPP NETSCREEN RACKSPACE
INS
2007 – 08 16%
2001 2003 2005 2007 2009 2011
GREENDOT ARUBA SOURCEFIRE YOUTUBE ADMOB DROPBOX UNITY SQUARE
ISILON ZAPPOS PALO ALTO FIREYE JIVE POCKETGEMS TUMBLR
LINKED-IN KAYAK BUMP MONGO
AIRBNB

18. Why Are Capital Efficiency & Market Waves
Related?
Microprocessors Computers Hard Drives Biotech Internet Cleantech

19. Is Your Business Dependant on the
―Kindness of Strangers‖?
Government subsidies or (potentially temporary) regulations?
The mass ―belief‖ in a market (before profits)?
The presumed exuberance of later stage investors?
The positive sentiment of the public markets?

20. Even For “Capital Intensive” Categories
The Likely Winners Will Still Stand Out from the Pack:
• Will use dramatically less capital
• Will use less people
• Will get to market faster
• Will be more profitable
For Startups, the ―Best‖ Technology Doesn’t Always Win

21. Conclusions
 Think Big…
market size, ultimate market dominance
gross margins, operating margins
value to customers, ultimate value of the company…
But Start Small…
headcount, burn rate, money required
singular focus, short time to market, …
If you have the ―right stuff‖, it’s always a great time to start a new
company!