

Sequoia's Scout Program - harscoat
http://pandodaily.com/2012/05/04/sequoia-confirms-existence-of-stealth-scout-program-whos-next/#.T6QwLN5lZnY.twitter

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hnthrowaway84
Sequoia is always ahead of the curve. This is good for entrepreneurs.
Entrepreneurs are told well in advance about money coming from Sequoia. Even
that article mentions that fact.

They have always been an early stage investor. They invested in Apple when it
was run by two scruffy kids and nobody believed their "personal computer"
story. Even the ones who believed were scared of IBM crushing them. They
believed Yahoo guys and their Internet story when it was still part time
project for PhD students. They believed in YouTube even though there were
bigger players in video sharing market. They invested in YC company (sama's
company) when people were mocking YC as place where "feature based" companies
are crated to be acquired. They invested in YC itself when YC didn't have hits
like Dropbox, AirBnB or Heroku. They never invested later stage at pricy
valuations like some of the recent funds. Be it that "hot" startup that comes
around the corner like Netscape, Facebook, Twitter, Tumblr and number of other
dot com companies.

VC's are figuring out how to combat things like YC and number of micro funds.
And here you have Sequoia, who is quietly doing things without any ruckus.
That too for last 3 years. They saw the threat of incubators/micro funds
before anyone else. And they acted upon it before anyone else.

PS. I don't work for Sequoia. Nor I'm their "scout"

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hncommenter13
In a sense, all VCs are scouts, as very few are investing exclusively their
own money. LPs give VCs money, VCs make investments and keep part of the
proceeds. Do we really know where Sequoia's money comes from? Does it matter?
Is the entrepreneur misled by not knowing? If not, what's the difference?

That we've assigned brand value to particular VC investors is, on balance,
generally irrelevant to startup success. A brand-name firm is a nice feather
in one's cap (and, as a former VC, occasionally an actual value-add), but it
is by no means a guarantee of success or protection against failure. Who one's
angels or VCs are is nice for the press, but it changes the likelihood of
success/failure of the company only marginally. Google would have been Google
no matter what firms were listed as owners in the S1.

Disclosure: I've known Nick Mehta for 15 years. He is without question one of
the smartest, most ethical people I know. Sequoia chose wisely in making him a
"scout," and I would accept his investment (of his own or anyone's money)
without reservation.

~~~
jpdoctor
> _Do we really know where Sequoia's money comes from? Does it matter?_

Yes. One type of LP are execs in companies that do acquisitions. When the
acquisition is done, the LPs do not disclose their involvement or profit.

This will continue until some shareholder lawsuit slams them for it, and even
then it will probably continue.

Edit: I should note that John Chambers has disclosed his profit in some
acquisitions, and stated that he would donate his proceeds. He did not state
that he would also donate the sizable tax deduction that he incurs from such a
donation.

~~~
anamax
> I should note that John Chambers has disclosed his profit in some
> acquisitions, and stated that he would donate his proceeds. He did not state
> that he would also donate the sizable tax deduction that he incurs from such
> a donation.

Your last sentence suggests that he should have forgone the tax deduction
associated with the donation. Why?

He had a gain that he gave up by making the donation. The value of the
deduction for making the donation is significantly less than that gain.

Since making the donation means that he doesn't get the gain, why do you think
that he should pay taxes associated with said gain? Taking the deduction
leaves him at 0. Do you really think that he should lose money?

~~~
jpdoctor
> _Why?_

Because shareholders do not employ executives to make acquisitions of terrible
companies simply for their personal profit.

> _The value of the deduction for making the donation is significantly less
> than that gain._

In CA, it is about 50% of the gain.

> _Taking the deduction leaves him at 0._

No, it leaves him with profit of 50% of the gain.

~~~
anamax
> No, it leaves him with profit of 50% of the gain.

We're talking about a gain that he donated.... You want him to pay taxes on
that gain, to forgo the deduction for the donation. That leaves him in the
hole.

> In CA, it is about 50% of the gain.

Not if it was long-term capital gains. CA gets 10% and the feds get 15% of the
remainder.

> Because shareholders do not employ executives to make acquisitions of
> terrible companies simply for their personal profit.

Cisco's board apparently disagrees.

------
paulsutter
One advantage of this program is that the company receiving the seed doesn't
get tainted if Sequoia passes on the A.

Companies can easily add a representation to their seed docs to prevent this
or at least force disclosure. The ethical and legal questions are around
exactly how the scout/angel presents the investment, how the rights work, how
the agreements are written, etc.

~~~
hnthrowaway84
"easily add a representation to their seed docs to prevent this or at least
force disclosure"

Could you please elaborate on this point?

~~~
paulsutter
A lawyer would write it, but something like "Investor represents that he is
investing his own personal money and not on behalf of another party". If the
investor turns out to be a scout, he has to negotiate that term out and you
get the chance to understand what's happening.

Representations are great. Anytime you are negotiating a deal, and the other
side makes some crucial claim that persuades you to accept the offer (for
example, "all of our other partners agreed to this term!"), just insert that
claim as a representation of theirs and watch if they squirm.

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akuchlous
on sequoia funding : by sarah lacy !

[http://nexthotstartup.com/2012/05/04/on-sequoia-funding-
by-s...](http://nexthotstartup.com/2012/05/04/on-sequoia-funding-by-sarah-
lacy/)

~~~
hnthrowaway84
How is it relevant to discussion here apart from some sort of joke about
journo. May be I'm missing something.

~~~
anigbrowl
Well, she's making a big deal about 'secrecy' and 'transparency' as if Sequoia
were somehow obliged to announce every startup it has contact with. The link
suggests she's overcompensating for the fact that this program has been going
on for 3 years and she doesn't know about it, which rather undermines her
branding as someone with their finger on the business pulse of Silicon Valley.
Discovering that she's not as clued in as she thought she was, she adopts the
tone of a Very Serious Person demanding transparency and accountability from a
private entity that has no particular obligations in these areas, at least as
regards business development.

This is the downside of 'celebrity journalism'; when almost every professional
writer insists on having a headshot and bio on every article published, then
their output becomes as much about self-promotion as about reportage. If their
reportage falls short it damages their brand, and so the story must be spun in
such a way as to reflect well upon the writer. Hence the phenomenon of writers
breathlessly reporting every snub or obstacle as if it were a personal affront
to them, frequently mentioning themselves in the story, burying the lede
beneath many paragraphs of overdramatic narrative, and baiting their writing
with more and more clicheed hooks and attention-grabbing headlines. A good
many writers are no longer practicing journalism, but rather marketing their
own brand of punditry. I partly blame Hunter S. Thompson for this - he
popularized a narcissistic style of writing that suggests the events under
discussion are nowhere near as interesting as the way in which the author
experienced them - except that Thompson was both more interesting and more
acutely observant than most of his imitators.

Of course, the increasing popularity of blogging is another major factor;
unlike print journalism for most of its history, the marginal cost of adding
extra information about the author or publishing every new bit of ephemera on
a blog is virtually zero, and so there is every incentive to do so.
Personalization is thought to make readership more sticky, and so everyone
does it; the same way every blog and news page is now festooned with
invitations to like things on Facebook, join the conversation on Twitter, tell
them what you think in the comments, and so forth. Very little of this adds
information to any given story - in the main, it's just an attempt to buy
traction by giving free advertising to networking products.

------
maukdaddy
To all the naysayers: there's no way you can read this and not come to the
conclusion that we're in the middle of a huge bubble.

~~~
hnthrowaway84
Its going for last 3 years. Meaning it started in 2009 when we were in deep
recession. Money has been floating around valley forever. When general public
(via IPOs) buy into frenzy then we can call it a bubble. How this program is
different from Andreesen Horowitz seed investments?

~~~
maukdaddy
A classic sign of a bubble is when you start getting unsophisticated (non-
professional) investors that only see money and start chasing the successes of
others. Two huge examples from the past 15 years:

1\. Tech bubble. Everyone and their brother became day-traders, chasing the
hot stocks and trying to make their fortune. People were throwing their
retirement savings, spare cash, anything they had into tech companies trying
to make a quick buck.

2\. Housing bubble. Everyone and their brother became flippers, chasing the
hot properties and trying to make their fortune. People were throwing their
retirement savings, spare cash, anything they had into properties trying to
make a quick buck.

Copy/paste intentional.

~~~
mlinsey
"A classic sign of a bubble is when you start getting unsophisticated (non-
professional) investors that only see money and start chasing the successes of
others."

I agree with this, which is why I am confused as to why you see this program
as evidence of a bubble, since it's pretty much the exact opposite of what
you're describing.

