Adapting Episode 2: Sequoia’s Black Swan Memo (with Roelof Botha)

0:00 It was pretty good. It was Yes, it was pretty good. Don't doubt your vibe. For not being his full time gig. It was pretty good. Emo G Records.

0:23 Welcome to episode two of Adapting. I acquired. Yeah, well, I uh I rehearsed. Or for uh for those keeping track at home, season six, episode five. We are continuing our series to bring you the stories of great companies and great leaders who are adapting to a world that's changing in real time.

0:44 Today, we are covering the story behind the memo Read Around the World, Sequoia Capital's Black Swan Memo, amazingly published. Only twenty days ago as we record this. Men. Feels like twenty lifetimes ago. I know.

0:59 I know. Well, we are joined by the best person in the world to tell us about it, longtime Sequoia partner, Rulof Botta. Today's episode is different than last week's episode with Canless. We are going much closer to acquired bread and butter of technology and venture capital. This conversation is particularly interesting not just to hear the story behind the Black Swan memo, but also to get a real time look at how Sequoia themselves are thinking about adapting during this time, along with their portfolio companies. Before we jump in. If you haven't already, we want to strongly encourage you to join the acquired Slack community.

1:35 I honestly think at this point it's Probably the best community on the internet for people focused on building and investing in great companies. We really mean that. And that's a testament to you all and the quality of people that listen to this show. It's been pretty awesome, especially over the last week or so just seeing how we're all supporting each other in there and helping everybody get through this time. So you can find a link on our website to get an invite. You should definitely sign up.

2:00 The other thing we want to uh tell you about is as we announced on the last episode, we're adding something big to the limited partner program that we're really excited about. We're gonna be hosting monthly call on Zoom for all LPs. Uh which we're calling. Appropriately enough. L P calls. Um, David.

2:21 Yeah, super original. We're big into branding here at Acquired. So when you sign up for the limited partner program, you get both all our LP episodes, which go deeper on nitty gritty company building topics. And access to the monthly LP calls with both of us. Uh you can sign up by clicking the link in the show notes or going to glow.fm slash acquired. All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora.

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5:02 And just tell'em that Ben and David sent you. And uh with that, David. We will uh dive into our interview with Rulof. We are Super lucky to have Rulov with us today. Rulf has been a partner at Sequoia since two thousand three.

5:18 And led early investments in some of the most important companies that we've covered on this show, companies like Instagram, YouTube, and Square. Uh he currently leads the firm's US business as one of Sequoia's three stewards, along with Doug Leone and Neil Shen. And prior to joining Sequoia, Rulov uh was the CFO of PayPal, which is particularly relevant to our conversation today, um, having helped navigate them through the dot com crash, their subsequent IPO, and ultimately their sale to eBay for one and a half billion dollars. Welcome, Rulov, and thanks for joining us in these interesting times. Thank you. I wish the circumstances were different, but I'm I'm glad to be here. Us two, we're glad to have you. Let's

5:59 Jump right into it. On March F You guys did something that now seems obvious in hindsight, but definitely did not seem obvious on March fifth was which was Yeah, I think March fifth that was like two years ago at this point.

6:19 Some decades nothing happens, and some weeks decades happen. Yeah, it's been about two decades. You guys released publicly both simultaneously emailed all your portfolio CEOs and posted on Medium. uh what you call the Black Swan memo. Um I'm sure most of our listeners have read it probably multiple times at this point. Uh you know, I just want to point out I wanna highlight one kind of quote from it that again probably everyone's read, but

6:42 It's such a stark difference between What you guys said and what so many other investors and people were saying at the moment. You say having weathered every business downturn for nearly fifty years, we've learned an important lesson. Nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology As Darwin surmised, those who survive are not the strongest or the most intelligent, but the most adaptable to change Can you walk us through

7:15 As you were writing this and getting ready to hit Publish. Like what were you feeling internally? The sense of nervousness that the world wasn't really paying attention to the reality that we were facing. We have the benefit of being a global partnership, so we were seeing what was happening in China with our with our business and with our partners and what it was like to be under a lockdown. We've been through many business cycles in took way. We know we've been around for forty eight years.

7:39 We've been through so many of these cycles and we've seen this movie before. And our sense was that People hadn't quite realized what was about to happen. It was like watching an accident happen in slow motion. You could just you could just see it and we felt a duty and obligation To do something about it. Well, let's set the stage for folks. This was six days before the NBA announcement came out. So it was sort of a week before the the general American consciousness woke up and said, Oh my God, this is a huge deal.

8:08 w did you worry at all that you were jumping the gun and and as a related question I mean Sequoia is such a force in our ecosystem. Did you think about the risk of gosh, do we do we incite something by by releasing something like this? We do, which is why we do this very infrequently. The last time we did something comparable was at the end of two thousand and eight with the rest in peace, good times.

8:32 memo which wasn't intended to be published. It was really intended just for our founders'cause we wanted them to understand what was happening. And it comes at a risk. I mean even there, I I I I heard from people back in two thousand and eight that you know we were the reason the crash happened like as if we had that kind of power. And similarly yeah, I yeah, uh I heard people complain, you know uh we're being alarmists and things like that, but we really felt a duty that, you know, m maybe people are gonna be uncomfortable with us saying these sort of things, but we have an obligation to tell people what we see coming around the corner.

9:04 Someone challenged me and said, Well what if it doesn't turn out to be that that bad. And I said if that's the case, I'd be so thankful. I'd be so thankful and I will eat humble pie for having published this. It is so much more important for us to to put the word of warning out. Often when you're in the trenches as a company, you know, you you have a slightly different perspective on things, especially if you haven't been through previous cycles.

9:25 And I remember when I was there at PayPal in You know, I joined in March of two thousand. The NASDAQ saw it its slide in April. And I remember being at a board meeting with Mike Moritz from Sequoia in June. And he told us he wanted us

9:38 Focus on runway. Because the financing environment has changed forever and I think honestly for for all of us is you know first timers, if you will, in the company. We didn't quite fathom that. We thought that, you know, what we'd experienced for the last two years would continue. And he really rang the bell and we paid attention and that month we we really started to sharpen our pencils to make sure that we had enough runway to make it to the other side.

10:03 I'm super curious. You've you've talked about this a bunch. And and obviously as CFO you were right there at the helm doing this. W what were the things you did? I mean You were, I believe, the first technology company to go public after the crash. Then had this wonderful exit. Like what were the actual things that you did to to save the company and to stay on a growth trajectory even through all this carnage.

10:27 First thing's obviously a team effort, right? I mean I I was One of many people of the company that rally together and I think that's one of the things that you see in this Unfortunate humanitarian crisis. I mean I think the thing that's different about this, by the way, is it's a health crisis in addition to an uh economic crisis. at a global scale. I mean that makes it so different from any of these other incidents we've seen. And you know, that's awful on many levels, but I I do think it's it's very different from what we had back then.

10:52 But we rallied as a team. And we looked through the P N L I mean, I remember literally going through line by line on every single thing on which we were spending money to figure out what was truly essential. To helping us build a successful business. on the expense side. The things that you can control.

11:08 We tried feverishly to raise more money to extend our runway. And we got religion about um our business model. I mean, up until I think June ten or june twenty, two thousand, PayPal didn't charge for its service. And at that point we realised if we wanted to keep going We had to figure out a business model.

11:25 And make it make it a great business model. And that's exactly the kind of focus that we got Because this the external environment changed so dramatically. Your constraints enable you to come up with creative new solutions. And so I think you're gonna s you're gonna find an incredible array of entrepreneurs coming up with wonderful solutions in the midst of this terrible crisis.

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13:35 Black Swan memo. Can you talk a little bit about what it was over the preceding weeks before March fifth that you were seeing in In China and obviously through your unique perspective that Kind of gave you confidence that hey, this this is a lot more serious than people are realizing in the US and and elsewhere.

13:53 I think we saw how our team in China immediately had to go into a full lockdown. just sort of a dramatic change at an at a national level with over a billion people and just not just in the province that was affected, but everywhere. But they were taking it seriously. So clearly the The people at the front lines had seen that this was a virus unlike others. that ha was spreading a lot faster and had higher mortality rate than a typical seasonal flu.

14:17 So that just felt very, very different. I think it just pretty obvious that by then there were cases showing up in the US. even though there was a travel ban at one point. It was just too porous. People could have come here from mainland China, they could have gone to other parts of the world and coming into the US. And so

14:32 It was quite likely But there's a bigger problem today in the US than we realise. And this is the you know, the unfortunate thing about the absence of testing infrastructure right now in the country. No, I have a friend in New York who had it for eleven days before he was confirmed positive last week. My brother in San Francisco

14:48 I think has it, but he can't get test it. He literally can't get test it because he's not in a high risk group. So I think that w we just had a sense that the problem was actually a lot bigger You know, there's the parable of the of the wheat or the rice in the chessboard. You know, where the person wants to get compensated one, two, four, et cetera. And it's it's obviously a great thing for people who study computer science, but you know, two to the power n becomes a very large number as N grows.

15:11 And Things that grow exponentially, we just don't understand it. Something that looked trivial twelve days ago, but it's doubling every six days, suddenly looks dramatically different. Just Two weeks later. And so I think we we saw that that this was at the cusp of happen in America. And so we

15:27 We felt this obligation, like I said earlier, to make sure that people paid attention and acted now. It's a great lead into something that David and I talk about a lot. And David, I don't think I have shared this with you, but I look up to you a lot in in the way that you think about playing defense and playing offense and being very careful about when is a a time for defense and when is a time for a offense. You know, doing both at the same time, you just have to be careful what actions are for which thing. And Rulf, I want to dive in on defense right now. You guys have been putting out a reasonable amount of of content compared to sort of Sequoia of old. Um, and one of the pieces that you publish for entrepreneurs is this decision matrix. And I I I would sort of think about this as defense. How how should entrepreneurs use that? And then I'm I'm curious to ask you some questions about offense. So um I wanna give credit to one of our CFOs uh in the portfolio. He, you know, doesn't want to be singled out to name, but he developed this.

16:17 for uh a portfolio company where I happen to be on the board for Sequoia. And I thought it was an incredible structure. In that case the company had sort of seven main scenarios with a couple of sub scenarios. And I just thought it's a wonderful framework to address the challenge you face because We don't know the state of the world.

16:35 Well, there's so much uncertainty right now about you know, are we actually gonna reopen an Three weeks, four weeks, ten weeks. Is it gonna be a second wave? Are gonna be are there gonna be five waves? Is the world gonna be in we we don't know. So I thought it was a wonderful way to think about what are the various scenarios that may play out. What are the strategies you could pursue?

16:53 And what does it do for your resulting cash balance? at some future date that is important and your end is uh as good as any, I guess, at this point. Because companies need to survive. Cash. is the most important thing companies have to focus on right now, because if you don't survive, obviously there's no chance for you to build an enduring business.

17:10 And so that's the reason I thought it was just a fabulous framework and again we we felt we wanted to share it with as many people as possible. Um and we did actually on on uh Friday we had a Uh a Q and A session with over a hundred portfolio companies, uh several of our partners hosted this call and we shared it with those companies and we just felt then that we wanted to share it with everybody. Now to ask the question on offense.

17:32 this time is incredibly challenging for a lot of people and we should in no way gloss over that. I'm sure it's challenging for you, it's challenging for me. Yet. you can sort of squint and find ways to actually turn it into something positive and and find perhaps a dislocation in a market or an opportunity that's emerged that was never a need from people before. And I'd just love to get your perspective on how can people be proactive and turn this into a positive.

18:00 Well there are a couple of companies obviously that benefit from Us all having to work from home and and things like that. So The product we're using. Zoom is obviously benefiting the companies like Loom in our portfolio that are benefiting the delivery companies are an essential service in my mind to make sure that we we

18:18 Aga delivery of of basic necessities. There's a class of companies that are benefiting. You may not be one of those companies, so that doesn't really help you. The thing that I think really Everybody can focus on in this Time is product. development.

18:32 Keep on investing in your product. Sales and marketing by definition are going to be challenged over the next few months. Because people are gonna shift their consumption behavior. Face to face selling if you're an enterprise company is gonna be hampered.

18:44 marketing channels maybe are flooded by the things and it may seem insensitive candidly for you to piddle certain types of products right now, it it's just not the right time. hunker down and focus on product development. Build that truly differentiated product that if you can survive gives you a huge advantage when you come out the other side. Because part of what happens here and I'll I'll use the analogy of

19:05 of us namesake sequire tree Like forest fires have been a part of the the landscape in the US for a long time and it'll often clear the brush. And the sequo trees that survive end up thriving disproportionately once the fire has cleared. Right, because there's more sunlight and there's more space. For those that survive.

19:24 And so it You know, you've got to wait your time out and make sure that you can pounce with a truly differentiated product because the the competitive landscape is probably going to be clear for you after that. I think the other thing to do, just David, before that is is to look for a community. So

19:39 You know, it's a lot of what we've been doing trying to get our founders together, not only with the sort of weekly call that we're doing now, but getting founder to founder communities together. And there's so much ingenuity and so much good advice and tips that they can share with each other and and also just kindred spirits where they can share some of the suffering candidly that's happening right now. So Lean into community, lean into your product. I know you guys have done some innovative things creating spaces right now for portfolio companies. How are you doing that and how are you interacting with them and then with each other?

20:09 Well I think at an individual level, obviously board members are in frequent contact with the companies as we try to share best practices. Um, in addition to the matrix which we shark, there are a couple of other things that we've prepared for companies, you know. for the unfortunate company that may need to go through a reduction in force, for example. We've actually prepared some best practices that we've seen so we can share people and just help arm them for some of the challenges that lie ahead. We've created the QA with us as a group.

20:36 So we get a hundred over a hundred companies get together with Sequire partners and we have a few prepared remarks, things that we're seeing, and we open it up for questions. We're arranging founder to founder sessions. uh no sequire person present, uh where they can just industries that are relevant where they can share best practices. We're also doing that for CFOs.

20:54 'Cause I think a lot of the CFOs across the portfolio are dealing with similar challenges. What do they do about potential rent abatement? What are they doing to renegotiate debt? What happened to that financing that was supposed to close, things like that, where they can also get together and help each other. If anything, this has also accelerated our desire to build even more digital products around our community. We've pride ourselves on the sort of community things we do with

21:16 activities like Basecamp and AMP and other programs we have, obviously those are halted right now. And what can we do to to recreate as much of that as possible online is something we're working on. Can we circle back real quick before we Get off of playing offense for Portfolio companies.

21:33 I wanna come come back to your time at PayPal. It struck me that like I didn't realize that PayPal didn't have a business model or at least a viable business model until after the crash. As I kinda think about like The Hierarchy of

21:48 impacts of change you can have as a startup, you know, they're sort of like at the bottom is like sales and marketing and then nothing in sales and marketing. And then at the mid level is is product. But actually the highest level I always think is is changing a a business model. Now is kind of a really good opportunity to do that. How did you guys think about You know, went there was the necessity of okay, you need to make revenue now. But how did you How did you figure out that business model so quickly uh during that time at PayPal? Necessity is the mother of invention.

22:20 Well, I don't think it was that difficult to figure out that as a payments company there were so many precedents of charging transaction based fees. Um, I think there were some other nuances where we figured out how to get bank account funding so that we had a much higher gross margin. than traditional credit card. processors did. So there's some other things we did. We also had to figure out solutions to online fraud, which took down many of our competitors and was a very expensive thing

22:43 For us as well. We lost millions of dollars in two thousand. to scalable online fraud. Part of what we talked about at the company was At the end of the day, if if we can't Keep the company alive.

22:55 because people are willing to pay for the service we provide. We don't really have a reason to exist. But we need to deliver enough value so that whatever we charge leaves enough of a gap of value capture to the customer where they're happy to pay for the service we have. And and I think many companies may face that type type of a crucible moment. over the next six months if they've been free services or if the business model hasn't really been refined properly. But it's clarifying at some level.

23:21 Yeah, where you're really forced to show up in a way that says, uh Hey, I am delivering enough value here to charge for it. What's the quote about is it a Warren Buffett quote? Um You know who has their uh their shorts on when the tide goes out.

23:40 Is it okay. Well I'll give you another one that we used actually this week uh in our partnership which is um Calm Sea is never made a good sailor. Yeah. And We've had a long period of Com Cs.

23:53 We have, and this is gonna be a time where I think you're really gonna see people differentiate themselves and how they deal with the crisis. you know, who steps up, who provides leadership, who reminds a company of the mission of the company. The purpose that they have beyond just

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25:43 And in a future, that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is. Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale. Go check out service now dot com slash acquired and tell'em that Ben and David sent you. Well I wanna move us along to uh a a section here that we're doing and adapting called adapting and really talk about Sequoia itself and and how you're adapting. And I remember when we interviewed Doug, he spoke of the war room days of managing the nineteen ninety-nine fund um after the dot com crash. What does the Sequoia war room of March twenty twenty look like? Uh especially as you literally can't be in a war room together. The virtual war room. You know, the other thing it which which is challenging is we have our uh bi annual L P meeting.

26:35 Next week. Just for context, it was originally supposed to be in India. And then in January we started to worry given what we were seeing in China. So we actually moved it in January. From India to California, because we thought there were going to be issues in this early uh April, late March time frame.

26:54 I mean just concretely we took action. And then obviously having it in California started to to not look feasible, so we've moved it to a virtual LP meeting. So in the midst of preparing for a very important event for us. I mean R L Ps are our customers and we want to do We wanna have a great show for them in some sense and provide candid feedback and

27:13 reporting on our funds. At the same time, you know, we're running around like crazy looking after our portfolio companies. The most important thing we've focused on over the last two weeks is our companies. You know, Sequoia as a business we've been around almost five decades we're not in a in a tough

27:30 But fortunately But some of our companies really do face challenges, and so we've really oriented everything towards what is best for our companies. We've built a bunch of online tools so we have resources where we can all look at things. We have daily stand ups. uh using Zoom so that everybody can stay in touch. We understand what the prioritization is.

27:48 Uh we're using a many more. And that's among the partnership? Within the partnership, yes. So that as a team, since we you know, what do you do to mimic the the effect of being in the office together so that We just stay in touch a little bit more frequently. And we've created these online resources and probably the most important thing we've done is to do a a a very thorough analysis of the portfolio health. So literally company by company across every single company in the US, we've gone down to figure out

28:12 Okay, at your end in December What was the expected runway based on cash and burned in? What do we think it is now, given the changed circumstances, and which of the two, three dozen companies We really need to spend most of our attention.

28:27 Some companies are early stage, six people, product development I mean in some sense they're unaffected. They're just building the product and hope to launch next year. And then there are other companies that are really affected significantly. And so as a team, we try to figure out how do we rally around them. And how do we bring resources to bear to help them navigate through this tricky period? Yeah.

28:48 around the portfolio companies, you know, it sounds obvious that of course you would spend time with your portfolio companies. What are the things that you're not doing as much of that you would normally be spending your your days doing, um, and how has sort of this time forced you to change that? Seems like we do more of everything. Honestly. No no less of that too. I mean interviews are are still going on. We're just doing them all as virtual interviews. I do think there are probably one or two higher somewhere where you're you're gonna wait to m meet the person in person before you make a formal final hiring decision? But for us we're onboarding people remotely. We did this on Monday. We had a a person who joined who

29:28 you know, first virtual onboarding for us, as our portfolio companies are doing. I was on on a call earlier today with a company and they onboarded twenty one people on Monday. Uh remotely. And you know, people are gonna keep hiring, they're gonna keep building products. So I think a lot of those things stay the same. We continue to make investments. We formally approved uh two new series A investments.

29:48 Last week. Uh and those meetings were virtual meetings? So business continues. Has something changed in what you look for in companies compared to call it two, three months ago? In some sense not. I mean certainly not at the series A stage,'cause I think the you know, those companies

30:05 They're at such an early stage that product needs to be so differentiated and really solve a problem that would transcend the current market. I mean obviously if the if the US is shut down indefinitely, that's a different situation, but You know, these companies all have a sound value proposition and once things are a little bit more normal, even if the economy goes through a recession, we believe in these businesses because they're really solving really important problems.

30:27 And so we have confidence in them. We have asked people how they plan to respond to a changing circumstance. Little bit of a taste. on whether they're nimble, are they flexible, or are they just tone deaf to the reality of the world we're in right now? So that clearly is a question we're asking that's different. Uh and then we're also spending time thinking about what new categories may be unfairly favored

30:49 sort of post Chronococalypse. Um Do you end up with digital health companies, uh online education, Um

30:58 A bunch of things may change and Are we forced into a behavior change through this environment we're in now? That sticks. I think it's a really interesting question. I uh a lot of people are thinking about this. I think it's a really interesting thing to try to Yeah, you know, conjecture.

31:11 That's the perfect transition to Kind of the the topic we wanted to Wrap up with you on I was thinking about it when you mentioned your your L P meeting next week, which man, I feel for you. I know how important Those are having a

31:24 Done them, attended them and everything. And and it was interesting. Just yesterday I attended one virtually and it was amazing that it was actually better. Uh you know, these tend to be pretty dry affairs. This is a small example, but Uh either through the L P meeting or or more broadly. Have you guys started to think about what

31:43 Kind of permanent changes to Sequoia might come out of this. I think we're gonna be We'd already see it in a trend where uh companies are becoming more distributed. Partly because the cost of living in the Bay Area is so high. And the cost of hiring engineers is just so high. We've we've already seen a trend where companies are willing to tolerate

32:01 remote work by individuals or multiple remote Development offices. I think that trend is gonna gather steam. Um I think you're gonna run this experiment That's actually measurable.

32:12 on how people perform in this kind of an environment. Um so I think That just objectively is gonna change the debate. 'Cause I think it's so easy. We you know, as humans we resist behavior change whenever we can, and this is forcing behavior change. So I think Tolerating businesses that are distributor.

32:29 Um learning how to work effectively with distributed teams. I think we're likely to see people start companies in many more places. And again, that's a trend that had already started. you know, Silicon Valley doesn't have A monopoly on idea generation? And I think many more people will start companies elsewhere. So we

32:46 probably m need to be more willing to Fly or if not fly given uh health issues, do online assessments of companies. So I think those are clear permanent changes. For a company and I think there can be a lot more of these, like Zappier, right? Like we had Wade on the show. They have no office.

33:07 How are you gonna think about a company like that in the future? Is that a US investment? Is that a A global investment. Who needs them? Oh. Well, you know, honestly w so we've run into a couple of conflicts like this, but I don't actually think of them as conflicts. Our team in India is an investor in a fabulous company called Fresh Works.

33:25 Most of Freshwork's customers are in the developed world, including the US. So you know, th my guess is the majority of their revenue comes from the US, but it was an investment out of our India office because that's where the company is based. And they have a presence in the US too, but we help them. We're one partnership globally. We've we've done some really clever things behind the scenes to make sure that we feel Like a single partnership and how we share knowledge and

33:47 sheer compensation and things like that in a way that makes it feel good. And I'd rather have more of those. I mean, that's a great problem to have, honestly. There's a lot of folks talking about the sheer amount of dry powder that has been committed to venture firms in this climate. So they're saying, you know, the funding won't slow down because oh my gosh, there's this just billions and billions of billions that's been promised to venture firms. So therefore deployment should continue at the exact same pace. How do you think about that? And it's probably too early to tell, but have you thought about should we slow deployment? Should we change when we want to raise certain funds? Should we change the mix of uh initial capital deployment versus follow ons? D does a climate affect something like that for you guys? So the two questions there, I think the one is what are the what's the L P behavior and the other one is what's our behavior.

34:35 And so the interesting thing in two thousand and eight Maybe not because we had a crystal ball, just'cause we felt things were a little frothy. Our investment pays had actually slowed down in the first half of two thousand eight before Lehman happened. And then we accelerated in two thousand nine. So I don't know if if you've ever done a a driving course.

34:55 But I I went to one once on a Formula One racing track. And the thing that they taught me is you you break as hard as you can while the car is going straight before you get to the corner. And then you have to figure out how to accelerate at the right point of the apex out of the corner so that you can sprint ahead. And this is exactly the analogy that we want to apply for our companies and for ourselves. You know, we slowed down in twenty nineteen.

35:17 Not because we had some crystal ball again that this was gonna happen, but we just it things didn't quite feel right. If anything, I want to accelerate out of this. I think there are going to be fabulous investment opportunities and great companies to be built. So so that's what we plan to do. For our LPs You know Our clients are almost exclusively these endowments, foundations, and nonprofits, and we're really proud of the the great causes represented by our LPs. Um

35:40 We actually got an email earlier this week that about ten of our LPs People like the Cleveland Clinic Johns Hopkins University, uh the Welcome Trust, Stanford, MIT are all working on I the better diagnostics.

35:54 potential treatments or vaccines for uh coronavirus. So so we love the fact that our clients are doing these things. So when we generate profits, it helps them do these sort of things. I think our clients are relatively well protected. But if you talk about the industry at large, I suspect some LPs are gonna end up with cash flow issues, just like there are many other businesses that they're gonna end up with cash flow issues and That may at the margin you know, lower the amount of venture capital being deploy over the next year or two. But

36:21 That's total speculation, I don't know. L P's already. Allocations to venture and private companies broadly had already gone up so much for LPs just with the bull run in valuations on the private markets and lack of liquidity over the last ten years. Now with public markets dropping so much

36:42 you can get into a situation as an L P where you aim to have, say, fifteen percent of your assets in private markets total. And now you have forty percent of your assets in private markets and that can be a scary position. Um Well is that I mean uh LPs may also end up with cash flow issues on their own. Right. So part of what we saw in two thousand eight, two thousand nine were some LPs

37:05 have ongoing commitments. They have outflow commitments. If if you're an endowment at a university, you probably represent more than half the expenditure at the university. And it may be the donations dry up. Well so philanthropy shrinks in an environment like this, and so

37:19 they're even more dependent on the endowments being able to continue to pay for Teachers and you know keeping the school hospital going and things like that. So so there are a bunch of cash flow issues that may also then drive people to pull back from venture capital.

37:35 But It's so neat to tell. I mean you know, I look at the gyrations every day in the stock market and it's like flip a coin. Is it plus ten, minus ten today? Like I have no idea. And again, it feels like twenty years. Yeah. All right, listeners. Now is a great time to talk about one of our

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38:55 Well, Rulof, uh I know this is adapting and not acquired, but we have one bonus question that that you know, we we decided if we ever had you on the show after doing our deep dive on uh on Square and doing the Square IPO, we had to ask you. You know, what was it like navigating the challenging square IPO and the months afterwards, sort of knowing what what what a predictable and good business it was, but just seeing what happened in the public markets after it IPO'd. This was like a key moment in acquired's history. We uh

39:25 You know, we can look back and t kinda to the pre square IPO episode and the post square IPO episode, um because it was just such a stark story to us of A company that was a great company that had just even in the bull market run that we were in when they went public was so Misjudged. It was really difficult and I you know, in the run up to the IPO because you have this um

39:48 quiet period we couldn't really respond. I felt As often happens with these IPOs that No people just keep on On this negative vicious cycle of negative press. And so it was a really painful to deal with that, and then you see the IPO price.

40:02 Uh at nine dollars. And You know, I was arguing the night before that we should price a little bit higher at least so we have more in the balance sheet, I mean to see the way that it popped in the first day I mean it was still not a great outcome. Even at the at the

40:15 uh close price at the first day. But I felt that we left so much money on the table. So the the way to react in my mind was um to rally the team and to talk about just you know, we can't control our stock price, what we can control is our execution. And I think the management team did an incredible job of saying, look, It is what it is. We got through it.

40:33 Let's hunker down and let's just build a great business. And they did that. And then what we did as an investor is we were patient. So we didn't distribute a single square share. until four years after the IPO. Four years.

40:47 And so That means that we distributed, you know and we s we still haven't fully distributed, by the way. Because I have so much faith in this company. You're still on the board, correct. I'm still on the board. I love working with the team. I love working with Jack. Um I love the the mission of the company around financial empowerment.

41:04 And the fact that we're able to do that now not only for small businesses, but also for consumers with a square cash app. I think it's it's a it's a Fabulous company to be associated with from a mission point of view and the actual financial results. And My partners and and myself, we were just really patient and so The fact that it was nine dollars a shared IPO didn't matter because we distributed shares when it got to eighty.

41:24 And so we so at the end of the day, we made a much better return for our limited partners by being patient. And I think the team also appreciated us as a really patient investor. It's great. Thank you for sharing and that's uh A good note to end on with, um

41:40 This moment in time too, right? Like uh You know, for for great companies They're gonna survive. They're gonna hunker down. And now is not the time to liquidate your shares. Yeah, I think it's

41:52 Focus on the long term. Solve real problems. Yeah. Well on that note, Rulof, where can our listeners get in touch with you, with Sequoia? My first name Ruloff.

42:03 at thequare cap dot com. Great. And are you on Twitter? Yes, Admiral of Queen. Signed up in two thousand seven. Nice. I've been using her for a long, long time.

42:14 That's awesome. Well, thank you for joining us, listeners. We hope you enjoyed this episode uh of adapting. Please send us feedback. Acquire at Fm at gmail dot com or uh or join our Slack and uh we'd love to talk to you there. Rulov, thanks again.

42:28 Thank you, Ben. Thank you, David.

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