A Letter A Day: Don Valentine (2000) – Real VCs help build great companies

A Letter A Day is a nice little blog posting timeless letters from great investors and business leaders alike. This one’s from the legendary Don Valentine, founder of the iconic venture capital firm, Sequoia Capital.

But first, the author Kevin G’s introduction to why we must pay attention to Don:
“Don founded Sequoia Capital in 1972 and helped grow it into one of the most legendary investment firms in the world. He started the fund in 1972, and they’ve gone on to invest in companies including Apple, Airbnb, Block, ByteDance, Cisco, DJI, DoorDash, Electronic Arts, Figma, Google, Hubspot, Instagram, Layer Zero, LinkedIn, Meituan, Nvidia, Palo Alto Networks, PayPal, Pinduoduo, Snowflake, SpaceX, Stripe, Unity, WhatsApp, YouTube, Zappos, and more. They’re also investors in Loom, Noom, Rec Room, Xoom, Zoom, and Zūm. In aggregate, the companies they’ve invested in had at one point created over $3.3tn in market cap (for reference, today, the market cap of the S&P 500 is ~$33tn).

Even famed value investor Charlie Munger has praised them, saying “The most remarkable investment firm in America is probably Sequoia. That venture-capital firm absolutely fanatically stays right on the cutting edge of modern technology. They have made more money than anybody and they have the best investment record of anybody. It’s perfectly amazing what they have done” and “The best venture capital operation probably in the whole world is Sequoia’s and they are very good at this early stage investing. And I would hate to compete with Sequoia in their field. I think they’d run rings around me.”

The letter is from the year 2000 amidst the internet bubble but it could well have been written in 2021 – a scathing remark on the greed that a number of new age VCs not just get sucked into but propagate, unlike real VCs who help build great businesses over the long run.

“The Internet hysteria of the late 1990s made venture capital look easy. Anyone and everyone with a sizable checkbook has been throwing money at even the most half-baked ideas. Getting in on the feeding frenzy has become the goal and somewhere along the line we lost sight of why venture capitalists exist-to build long-lasting companies and industries.
The promise of boundless riches from investing was destined to attract the wrong people-and it did. However, the evaporating fortunes of the dot-com losers these people backed afford us the opportunity to examine the role of venture capitalists with some historical perspective

…The result is that thousands of totally useless e-commerce companies that do little and will never earn a profit are collectively weighing down the real innovators and creators. And, there are hundreds of so-called “new era venture capitalists” who claim business on the Web is all about market share or eyeballs or some other hallucination in order to “put money to work.” Their orientation is to create a “great investment,” not a great company or a new industry. There’s a better name for these investors: I call them “day-trader VCs.” For this group, the Internet is nothing more than a modern day gold rush.

And the short-term, get-rich-quick mentality particularly plagues our local entrepreneurs, specifically the over-educated MBA contingent. They’ve been seduced by Silicon Valley lore and now want their piece of the pie, without contributing anything to the societal bottom line. They’re greedy, pure and simple.”

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