Sequoia Capital is arguably the top performing VC fund in the world. They have funded well-known public multi-billion dollar companies like Apple, Google, Yahoo, Oracle, Cisco, and Electronic Arts. Sequoia is also an early investor in many unicorns (private startups with billion dollar valuations) such as Airbnb, Dropbox, and Instacart.
Douglas Leone is a managing partner at Sequoia Capital. Here are some business insights that he tweeted about last year1.
Be wary of raising too much money for your business. Raising too much money can lead to a lack of focus. It can cause founders to try everything instead of doubling down and being laser focused.”Lots of capital often leads to lack of focus as management tries to do multiple things at once” tweets Leone.
Know the unit economics of your business and focus on optimizing that. Essentially if you have a product or service that costs $100 to make or sustain and you only get back $50 dollars over the lifetime of the product or service. Than that is example of poor economics.You want unit economics where you can get a profit. So if instead it costs you $50 dollars in total to make or sustain a product or service, and you get back $500 over the lifetime of the product or service; those are some great unit economics.Grow as quickly as possible based on “… market size, management bandwidth, and the cost of capital”. Raising money will not help if you have poor unit economics.
The best businesses start by solving a need the founder has. Starting a business requires tremendous focus and sustained effort. It much easier to sustain when your solving a problem for yourself.”A good way to start a business is to solve a need you have yourself”, says Leone.
The best founders are leaders who are deeply opinionated. If you are constantly needing people to tell you how to run your business, than maybe you don't need to be running a business. The best founders have convictions and opinions. They might go against the status quo.As Leone puts it “We love founders who possess qualities that other investors find irritating: stubbornness, irreverence, opinionated, difficult…The best surround themselves with discordant viewpoints, make decisions, and lead.”
- Have a selfish view towards equity. The classic mistake founders make is that they raise too much money early on, from investors who don't add much value besides writing a check. Severe dilution early on can impact future growth of the company.Leone says “A classic mistake by founders is raising too much money early on. You should have a very selfish view toward equity. Party rounds lead to too much dilution early on. Have a clear sense of how someone is going to help you build your company before giving them a piece of it.”
1 - http://www.gsb.stanford.edu/insights/douglas-leone-five-lessons-starting-business-silicon-valley