💼 Sequoia, the biggest fish in the VC pond


November 25, 2020

PLUS: The $800m hot sauce deal.
November 25, 2020
The Hustle
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The Big Idea
Sequoia

The story of Sequoia, a Silicon Valley VC legend

Forty-eight years ago, the partners at the VC firm Sequoia chose to set up shop at 2800 Sand Hill Road — just over a mile from Stanford’s campus in Menlo Park, California.

For decades, Sequoia rode a core principle that is either genius, or an extreme aversion to long-distance exercise: “If we can’t ride a bicycle to [the company], we won’t invest.”

That mantra helped build Silicon Valley into a global hotbed for startup activity.

It all started with Apple

In 1977 Sequoia invested $150k in a fruit company a little PC-maker called Apple.

The position was closed in 1979, before Apple’s IPO, for roughly $6m — a healthy return, but shockingly low relative to what the firm would’ve made in the coming years.

Sequoia learned the lesson of prematurely selling a winner, and set out to not make the same mistake again. It now invests across a company’s entire life cycle, from seed round to late-stage growth.

And its winning bets have been huge

Some notable ones, per CB Insights:

  • It co-led Google’s Series B in 1999, turning $12.5m into $4.3B during the search engine’s 2004 IPO (a 300x return).
  • It invested $60m in WhatsApp in 2008, netting nearly $3B when the company was acquired by Facebook in 2014.
  • It made a $1.2m seed investment in Dropbox, which turned into $2B when the cloud provider IPO’d.

Other wins include Oracle, Nvidia, Zoom, PayPal, and LinkedIn.

The future of Sequoia

2020 has been another busy year for Sequoia, with investments in Snowflake, Unity Software, Airbnb, and DoorDash.

Now, per Forbes, Sequoia is opening its first office in Europe.

The firm has expanded over the years (Israel in 1999, China in 2005, India in 2006), but its absence from Europe was always a strike against the continent, which displays chronic symptoms of US Big Tech envy.

However, an early investment in Swedish payment provider Klarna wised up the firm to the opportunities across the pond and paved the way for Sequoia’s new London office.

In September, Klarna was valued at $10.65B, making it Europe’s highest-valued private fintech company.

With that score, expect to see Sequoia bikes cruising all around the Old World.

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Snippets
  • Dow at 30k: The storied stock index crossed a huge threshold Tuesday, less than 4 years after it eclipsed the 20k mark.
  • Fortnite’s subscription push: The darling of Epic Games will offer players full access and battle bucks for $11.99/mo.
  • No more excuses to only speak one language: Online learning maven Kahoot is buying Drops for $50m.
  • Netflix is taking down Chappelle’s Show at Dave Chappelle’s request. The show is owned by ViacomCBS, which has a contentious relationship with the comedian. Separately, $NFLX is spending $1B to expand a studio in New Mexico.
  • Big Real Estate: FAAMG ($FB, $AAPL, $AMZN, $MSFT, $GOOGL) own ~589m square feet of US real estate and are on a buying spree for warehouses, data centers, and office space.
  • Bonus: Move over, Bill Gates. A certain South African business magnate has added ~$100B to his net worth this year and is now the 2nd richest person in the world.
 
Gaming IPO
Roblox

The video game Roblox is eye-ing an $8B+ IPO

Two groups of people will be very familiar with Roblox, the sandbox game in which users build virtual worlds:

  • Kids under the age of 13, who make up 54% of the game’s 36m daily active users.
  • Parents, whose credit cards have been footing the in-game purchases of a virtual currency (“Robux”) and digital goods.

As The Street reports, these same parents can now get some upside from the money their kids are spending by jumping in on Roblox’s $8B+ IPO.

A rebuttal to ‘video games are a waste of time’

Unlike the time-wasters of yesteryear, Roblox empowers kids to build their own games and learn to code using the in-house visual design tool.

This year, Roblox will pay out $250m to its (largely preteen) developers, up from $110m in 2019.

The company’s Premium Payouts Program shells out money “based on the engagement time of Premium subscribers in-game,” per VentureBeat.

The numbers have boomed since March

Among the game’s Q3 2020 stats:

  • Bookings were up 200% YoY, to ~$497m (revenue is recognized over a 23-month period)
  • Daily active users were up 97%, to ~36m
  • Hours of usage were up 134%, to 8.7B

With a platform that skews so young, Roblox has to deal with many safety issues. Roblox also has to contend with the fact that users may “age out” of the platform.

While dealing with these issues, Roblox also has its eyes on a bigger prize: becoming a portal to the metaverse.

A recent L’il Nas X in-game concert drew a virtual crowd of 33m, suggesting the game is on the (Old Town) road there.

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Recycle, Reduce, Reuse
recycling robot

This recycling robot can’t come to market fast enough

Let’s be honest: every single person reading this email has — at least once — looked at the recyclables they had to sort and decided they’d rather just dump it all in the garbage bin.

In fact, according to the EPA, only ~35% of the solid waste generated by Americans is recycled or composted.

Enter AMP Robotics, a recycling robotics company looking to raise $70m. Per TechCrunch, this round follows a $16m raise from last November led by none other than Sequoia.

It’s not just you shirking your recycling responsibilities

For decades, China was the destination for unsorted garbage and recycling of all types. Two years ago, the Middle Kingdom put a kibosh on this waste free-for-all.

This change has put pressure on North American recycling facilities that don’t have the benefit of China’s cheap labor.

The pandemic is a catalyst for automation

Facilities have had difficulty staffing with humans since the COVID crisis took off.

Just a few weeks ago, AMP received its biggest order to date, when the $28B public company Waste Connections bought 24 of the machines.

As TechCrunch notes, recyclers are increasingly turning to AMP’s “combination of computer vision, machine learning and robotic automation” as a way to boost efficiency.

The machines are so precise, they can differentiate between Pepsi and Coke bottles.

We don’t know what black magic AMP is using, but we need it in our kitchen ASAP.

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It’s getting hot in here
Hot Sauce

PE firm sells hot sauce maker Cholula for $800m

The Wall Street Journal just dropped some spicy news: The $24B condiments giant McCormick — which owns Old Bay seasoning and Frank’s Red Hot Sauce — has acquired Cholula from L Catterton for $800m.

Founded in 1989, the pepper-and-vinegar-based hot sauce — known for its can’t-miss red cap — is named after the Mexican city it was founded in.

Most recently, it scored some cultural clout in an SNL skit, where the hot sauce breaks up a ketchup marriage.

Cholula’s secret sauce: changing eating habits

Hot sauce sales in the US are up 40%+ since 2015. Per the WSJ, there are several reasons for this:

  • Consumers (especially millennials) are gravitating to low-calorie condiments.
  • Growing immigrant populations are bringing new flavors.
  • During the pandemic, hot sauce has been a great addition to delivered meals and in-home cooking.

Cholula does $96m in sales, and the broader hot sauce market is nearing $1B this year, not far off from its frenemy, ketchup.

In honor of the hottest deal of 2020, here’s a definitive ranking of the world’s best hot sauces according to our graphic designer, Malary Lee:

I respectfully disagree and submit my list:

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The Hustle Says

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Quotes of the day
Don Valentine

Source: Sequoia Capital

Sequoia Capital’s founder Don Valentine is considered the “grandfather of Silicon Valley venture capital.”

He passed away in 2019 and left countless words of wisdom, per technologist and writer Tren Griffin:

  1. “[Venture capital] is all about figuring out which questions are the right questions to ask, and since we don’t have a clue what the right answer is, we’re very interested in the process by which the entrepreneur gets to the conclusion.”
  2. “I like opportunities that are addressing markets so big that even the management team can’t get in its way.”
  3. “The trouble with the first time entrepreneur is that he doesn’t know what he doesn’t know. After a failure, he does know what he doesn’t know and can beat the hell out of people who still have to learn.”
  4. “The world of technology thrives best when individuals are left alone to be different, creative, and disobedient.”
  5. “Think about a company like Eastman Kodak. It was the leader in its market, and now it’s gone. How can a $100 billion company go out of business? The answer is, easily and quickly.”
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Editing by: Zachary “10-bagger” Crockett, Jean Claude Air Damme (Engine Cooling Systems Manager).

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