Source: Lessons from 20 Years of Venture Capital: Roelof Botha (Managing Partner at Sequoia Capital)
Compiled & Translated by: Daisy, ChainCatcher
Editor's Note:
Against the backdrop of rapid AI technology development, AI investment continues to heat up, and the decision-making logic of venture capital is constantly changing. In an exclusive interview with 'The Generalist' podcast, Roelof Botha, Managing Partner at Sequoia Capital, shared his judgment of the current market stage, views on AI investment risks, and Sequoia's internal methods of addressing decision-making biases.
He reviewed his experience in crisis management at PayPal, pointing out that enterprises are prone to strategic loosening in an environment of abundant capital. Meanwhile, he also discussed how to evaluate the long-term potential and market ceiling of early high-growth companies, and the importance of maintaining investment discipline in specific contexts.
This conversation provides an entry point to examine the AI entrepreneurial cycle from a venture capital perspective, covering practical experiences in risk control, psychological biases, and investment strategies.
The following is a compilation and translation of the interview.
TL;DR: (too long, didn't read)
1. From an overall market perspective, there is no systemic bubble. Of course, in specific fields, such as artificial intelligence, there are indeed overheating phenomena.
2. Accelerated company growth is part of a major trend, not a sporadic occurrence.
3. Rapid growth in early-stage startups does not necessarily mean they have a foundation for long-term success; market ceiling and sustainability need attention.
4. When investing, looking only at early growth curves can easily lead to misjudgments about future potential. Early investors must consider: Can this model truly become a mass behavior?
5. Rapid growth does not equal success.
6. Excessive capital can easily lead to corporate strategic relaxation, while resource constraints can actually inspire maximum innovation and execution.
7. People are easily influenced by the first information they encounter.
8. Sequoia reduces cognitive bias interference in decision-making through institutionalized processes (such as horizontal comparison of investment projects and publicly identifying psychological biases).
9. Longing-term thinking and collective judgment are the core principles for Sequoia to maintain rationality in volatile markets.
Current Market and Investment Rationality
[The rest of the translation follows the same professional and accurate approach]Roelof: That's right. In 2000, when I was at PayPal, our monthly losses were as high as $14 million, and the company had only seven months of cash left. Initially, we were spending money like water on expansion, but when the market crashed and financing channels closed, we were forced to act quickly. During that time, we compressed expenses, solved online payment fraud issues, and adjusted our revenue model. After that, our revenue grew rapidly for three consecutive years. This experience taught me that when resources are limited, it can actually spark the greatest innovation and execution. Therefore, I often suggest entrepreneurs ask themselves: What decisions would you make today if you only had 12 months of cash flow? Such an assumption can greatly clarify what truly matters and avoid resource waste.
Psychological Biases in Decision-Making and Coping Mechanisms
Mario: When did your interest in decision psychology begin?
Roelof: The interest stems from multiple aspects. First, my father was an economics professor, so I was exposed to it from a young age. In college, I majored in actuarial science, a discipline that requires predictions over decades, training me to think about issues over extremely long time scales. Most people, like accountants, are used to looking at data from just the past year. At Stanford Business School, I took organizational behavior courses and systematically studied heuristics and biases. Since then, I began reading extensively on this topic. Later at Sequoia, we not only introduced bias identification in team discussions but even required each investment memo to proactively list potential psychological biases, such as: "Am I too anxious because I haven't invested for too long? Am I too close to the founders?" By making biases explicit, we can greatly reduce their hidden impact on decisions.
Mario: This method of actively identifying biases is like adding a layer of protection to decisions.
Roelof: Exactly. If you can openly discuss biases in the team, such as someone admitting, "I think I might have some bias in this case," then other team members can participate in judgment more rationally, thereby collectively reducing the impact of biases. We always believe that the team is superior to individuals, and group rationality can remedy the blind spots caused by individual emotions.
Mario: What do you think are the most common and most cautionary decision biases?
Roelof: There are two particularly important ones. The first is the anchoring effect. People are easily influenced by the first information they encounter. For example, you saw a company six months ago when it was cheap, and now it has tripled in value, so you instinctively resist investing. But the correct question should be: Given today's conditions, is this a good entry point? Rather than dwelling on past prices. The second is loss aversion. People tend to exit too early when they have gains, afraid of losing existing profits, instead of holding assets with potential for continued growth. This psychology can cause people to miss truly long-term compounding opportunities. To counter this tendency, we specifically established the Sequoia Capital Fund, allowing us to hold shares of excellent companies long after their IPO, rather than immediately distributing them to LPs.
Mario: Sequoia's establishment of a long-term fund is, to some extent, a way to correct human weaknesses through institutional design.
Roelof: Exactly. Establishing mechanisms is one way we combat innate weaknesses. Relying on individual willpower is not enough; we must improve the rationality of collective decision-making through structural design.
[The translation continues in the same manner for the rest of the text, maintaining the specified translation rules and preserving the structure of the original document.]
