This piece covers Doug Leone, who ran Sequoia for 25 years. His main point: tough markets (like early 2023) actually create the best companies—Cisco, Google, Stripe were all born in downturns. Key holdings mentioned: ServiceNow (great product sold itself even with a B-team salesforce), Nubank (founder took advice to build a tech company doing fintech, not a fintech company), and Dropbox (founder could explain exactly why 16 competitors sucked).
Doug Leone, in an interview on Invest Like the Best, reflected on his over 25 years of leadership at Sequoia, transforming the firm from a single $150 million early-stage fund into an $85 billion global powerhouse. The core philosophy he emphasized is adhering to a "clear and simple" investment appr
Doug Leone led Sequoia for over 25 years, transforming it from a single $150 million early-stage fund into an $850 billion global giant. The core theme of this episode is the "clear and simple" investment philosophy, and how to identify and cultivate the "killer instinct" in founders. Leone believes that venture capital has evolved from a high-margin cottage industry into a low-margin mainstream business. The current market (early 2023) is a "mess," but it is precisely during such difficult times that the greatest companies are built—Cisco, PayPal, Google, Stripe, and Square were all founded during tough periods.
Doug Leone believes that understanding a person's "why" for doing something is a stronger predictor of their success potential than "what" they do.
Leone aligns the criteria for finding founders with those for finding Sequoia partners: both seek "outliers." He explains that outliers achieve extraordinary things due to some intrinsic drive—"Maybe their dad told them they weren't good enough, and they want to prove how good they are; maybe they have a twin brother, with a mix of love and rivalry; maybe their first startup failed miserably, and they feel shame." He even believes part of the drive comes from "genes," having met people who "are just born that way."
In interviews, Leone's core method is to keep asking "why." He contrasts two types of responses:
Leone's judgment: "Wow, that's the answer."
Other questions he commonly uses include: asking candidates to describe their siblings with three adjectives, then describe themselves with three adjectives in comparison ("I don't care about the siblings, but it helps me understand you"); asking "Where can I get the best reference?"—as a setup, followed by "Where can I get the worst reference, and why?" The core trait he seeks is self-awareness, because it represents "the ability to break down problems to first principles."
Timeframe: Leone believes truly understanding a person requires "two to three hours, including a dinner," since the first 30 minutes are all rehearsed content, and people relax and reveal their true selves during dinner. Details he observes include: how they order, whether they salt their food ("it shows you're stubborn and not open to new ideas"), and how they treat the waiter.
Leone introduced a framework called the "merchandising cycle" to diagnose a company’s full-chain issues from product to sales.
The cycle’s chain is: Vision → Product Management (what to build) → Product Marketing (how to position and tell the story) → Demand Generation (acquiring leads) → Sales. Leone points out that when any link in the chain breaks, the outward symptom is "this sales team is no good," but the root cause may lie upstream.
Key judgment: "If product-market fit is solid, even a bad sales team can sell." He cites ServiceNow as an example: before Frank Slootman joined, Sequoia-backed ServiceNow used a "B-team sales force," yet the product sold "like crazy."
As a board member, Leone’s job is to "debug this cycle, remove the rocks from the river, and let the water flow as fast as possible." But he emphasizes: "Black magic is the founder’s domain — if you don’t have the right vision or aren’t close to product-market fit, Doug Leone or any VC can’t help you."
Three principles of product positioning:
1. Simple and clear: So simple even a layperson can understand it. "If you can’t describe it and others can’t grasp it, you’re doomed."
2. Single purpose: "I go to the store to buy a pencil because I want to write, not to scratch my back with the tip."
3. Early focus on a single vertical market: "We’re chasing these four verticals" sounds good, but it requires marketing in four different languages and distinct engineering features — a small company can’t pull it off. Instead, aim "like a bullseye," establish a foothold, then expand concentrically.
How to correct mediocre positioning: Leone’s strategy is "show, don’t tell." For example, if the VP of Marketing is underperforming, he won’t say it directly. Instead, he has the founder meet three outstanding VPs of Marketing from other companies. "Nine times out of ten, they’ll come back and say, ‘Wow, our current person can’t compare at all.’" He warns that directly "telling" can only be used once a year, and only after trust is built — trust "isn’t established on day one, but when the founder hits their first crisis and finds you helping them."
Leone believes venture capital has evolved from a "high-margin cottage industry" into a "low-margin mainstream business," prompting Sequoia to undertake three fundamental changes.
Industry Shifts: Leone observes that during momentum cycles (e.g., 1997–1999, 2006–2008, 2020–2022), "all the terrible habits emerge"—founders aspire to become unicorns, and VCs trample over one another. The current environment (early 2023) is "a mess": some companies hold $500 million to $1 billion in cash, generate $80 million in annualized revenue with no growth prospects, and "don’t know what to do." Yet he argues that "tough times are healthier times" because "reality is usually the opposite of appearances."
Sequoia’s Three Changes:
1. Vertical Integration: From seed investments of $50,000/$100,000 to billion-dollar-level investments (Sequoia has already written two $1 billion checks).
2. Globalization: Expanding into China, India, and Israel. The rationale: "All U.S. companies will go to Europe, and all European companies will come to the U.S."
3. Technology-Driven: "We can’t operate like a law firm—five or six partners hunting for deals like lawyers." Sequoia applies technology across every aspect of its business, helping to find and evaluate companies, as well as assisting founders.
A Warning on "Enterprise Value": When asked whether Sequoia itself has built monetizable enterprise value, Leone strongly objects: "That’s the kiss of death." He explains that once you start thinking about selling or cashing out, it means "the people today get rich, but the pie left for the next generation gets smaller." He reveals that he and Mike Moritz studied Capital Group’s model in the early 2000s—managing $1 trillion, with the founder owning only 1%, and most returns going to the next generation. Leone says: "Sequoia was given to us by Don Valentine—given, I use that word. Mike and I didn’t write a check to Don, zero. We are trustees."
Key Mechanism: Leone and Moritz established a "constitution": mandatory departure at age 65. Leone left on his 65th birthday, with zero carry in the new fund and zero ownership in the management company. "I ran Sequoia for 25 years, with zero ownership in the management company. I was a partner in 28 funds—that was enough." He sums this up as: "Stewardship over ownership."
Leone calls the clawback period of the early 2000s “the proudest moment at Sequoia” and details how the firm turned a 0.3x fund into a 1.9x fund.
Clawback Background: In 1999, unlisted companies went public, Sequoia distributed shares and paid out carried interest. Those shares later went to zero, but the carry had already been distributed. Leone recalls: “One night I did the math, and my net worth was negative—I was bankrupt, down several million dollars. So were all the other partners.”
Response Measures:
1. Completely eliminated carry and fees
2. Partners wrote personal checks to LPs because the fund had no money to recover fees
3. Reinvested all future meager gains and fees back into the old fund
4. Explained to new fund LPs: “We’re going to take a small portion of your money to fix the old fund. But one day you might face the same situation—isn’t it better to work with partners who care, so investors not only avoid losses but also make money?”
Result: Turned a 0.3x fund (i.e., a $300 million fund worth only $90 million) into a 1.5–1.9x fund. Leone emphasizes: “At the time, every other VC was saying, ‘This is a Mulligan fund’ (a do-over in golf). We didn’t do that.”
On the “Killer Gene”: Leone believes the criterion is “whether this person took risks early in life and bet everything on the line.” He tells candidates or his own children: “It’s okay to choose a parallel-track life (e.g., being both a banker and a consultant). It’s also okay to choose to take risks. What’s not okay is: picking one path but spending your whole life thinking about the other.” The killer gene means “putting yourself in a position with no safety net”—“usually, people who are a bit desperate and have only one way forward possess the killer gene.”
Leone lists the most common failure modes among investors and outlines his criteria for a perfect investment memo.
Failure Modes:
1. The analyst is excellent but "just can't get the deal done"
2. Being captivated by technology, never asking "Where is the meat? Where is the business? Who are the buyers?"
3. The product is "so great that I can't explain it" — "Then run away immediately"
4. "Cool is the enemy of reality"
5. Lying, lacking business intuition
6. The partner/analyst's description of the company completely contradicts what the founder says the following week — "A huge red flag"
7. Adopting a probabilistic mindset of "invest in 20, 2 will succeed," without genuinely caring about the founder and investors
Standards for a Perfect Investment Memo (Leone's "Three-Page Rule"):
| Position | Guest's View | Key Data |
|---|---|---|
| ServiceNow | Positive case | At the time of investment, the sales team was the "B team" but the product sold "like crazy"; Frank Slootman is listed as the best CEO Leone has ever seen |
| Nubank (David Velez) | Positive case | The seven largest banks in Brazil by market cap are all banks; Leone's advice was "Don't build a fintech company, build a tech company that does fintech"; David Velez is ranked as the second-best CEO |
| Dropbox (Drew Houston) | Positive case | The founder clearly explained why all 16 competitors were terrible and what a good product should look like |
| Cisco / PayPal / Google / Stripe / Square | Positive case | These companies were all built during "very difficult times" |
| Elon Musk | Positive mention | Cited as an example of "scale of ambition" (with the caveat "without discussing whether he should be Twitter's CEO") |
| Capital Group | Positive reference | Manages $1 trillion, with the founder holding only 1%; serves as a template for Sequoia's "generational transition" learning |
1. "Cool is the enemy of reality" — Leone believes that investors being captivated by technology and products that are "too cool to explain" is a common failure mode. If a product cannot be understood by ordinary people, one should walk away.
2. "Hard times are healthier times" — Leone notes that the current (early 2023) market is "a mess," but "reality is usually the opposite of appearances." Cisco, PayPal, Google, Stripe, and Square were all built during difficult periods. Falsification condition: if no great new companies emerge in the 2024-2025 market, this judgment needs to be revisited.
3. "Stewardship over ownership" — Leone left on his 65th birthday, with zero ownership and zero carry in the new fund and management company. He says he learned this from Don Valentine: "Sequoia was given to us by Don — given, not sold."
4. "The three-page memo rule" — Leone believes the perfect investment memo should contain: one thesis, one or two reasons, supporting and opposing data, and a final argument — all within three pages. "No one reads a 35-page investment banking-style memo."
5. "When product-market fit is in place, even bad sales can sell" — Using ServiceNow as an example, the sales team was a "B team" at the time of investment, but the product sold "like crazy." Leone uses this to illustrate: when diagnosing sales issues, first debug the upstream "commoditization cycle" rather than directly replacing the sales team.
6. "Show, don't tell" — Leone's method for correcting mediocre positioning is to have founders meet excellent people rather than directly criticizing them. He warns that "telling" directly can only be used once a year, and only after trust has been established.
7. "The clawback period was Sequoia's proudest moment" — Leone describes when his net worth was negative several million dollars, Sequoia partners wrote personal checks, canceled all carry and fees, and reinvested future returns into the old fund, ultimately turning a 0.3x fund into 1.5-1.9x. At the time, other VCs were using the "Mulligan fund" approach to start over.
8. "Killer instinct comes from having no safety net" — Leone believes that people who are "a bit desperate, with only one path forward" often have killer instinct. He advises candidates to "put themselves in a position with no safety net" rather than choosing a "parallel-track life."