Why Sequoia Stays All In – Despite High Rates

Limited Time Opportunity ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ Hello investor I am sure you have heard of Sequoia Capital, as it is perhaps the greatest venture capital firm ever. Roeflof Botha is the man who leads the firm, and his demeanor may surprise you considering the fact that Sequoia bets on early-stage startups. He speaks in a serious, no-nonsense manner. There’s no whiff of a “gambler’s mindset.” But his competitive nature is fierce. When he started at Sequoia 19 years ago, he affirmed his destiny as a venture capitalist by writing down “10^9” on the corner of his notepad every week. Why that number? 10^9 is equal to one billion dollars. It was Botha’s way to keep himself focused on picking extraordinary startups to deliver $1 billion in total gains. That was also the only number that he felt he would be able to make an impact on the venture firm. Sure enough, he hit the 10^9 number several times with his investments in YouTube, Instagram and Square. In 2020, he reached 10^10 – or $10 billion in total gains. Now, he recently did an interview with Bloomberg. The interviewer hit him with a question that may be on many investors’ minds: How would he approach venture deals in a high-interest-rate environment? Botha brushed off this concern. Why? Most of his best deals were in high-interest-rate environments: “When we invested in Apple in 1978, the ten-year yield was over 8%. In 1987, we invested in Cisco. The ten-year yield was over 8%. In 1999 was PayPal and Google, it was over 6%,” said Botha. “Today, the ten-year yield is only four and a half percent.” In other words, some of Sequoia’s best investments were made during the 10-year yield nearly two times higher than it is right now. So, Botha doesn’t pay any attention to interest rates because great companies are built in any environment. “...great companies are built in recesssions, in high interest rate environments, low interest rate environments. And so, that’s what we focus on,” said Botha. Moving on to the next “hot” topic… The interviewer at Bloomberg asked Botha about artificial intelligence. Is it as big as people hype them to be? He said that AI could be as significant as the internet, cloud computing, or mobile: “The potential is immense. We liken it to the internet or to cloud computing or mobile and its significance.” Dozens of statistics back up Botha’s conviction. For example, Grand View Research estimated that the global AI market to be worth $136.6 billion in 2022. The research firm forecasts that it will grow by over 13x to reach $1.81 trillion by 2030. Here’s the takeaway from this email: (1) Sequoia doesn’t believe in pulling back from investments in startups during a high-interest-rate environment, and (2) artificial intelligence could be as big as the internet. Imagine that we are in 1995 again. The 10-year Treasury yield is about 6.7%, while the Federal Funds Rate is at 5.83%. (They are higher than we are seeing right now in 2023.) What if an investor hesitated and didn’t jump in the Internet boom due to the fear of higher interest rates? It wouldn’t be pretty, as he would have missed all the gains over the next two decades. The same thing may be happening in the era of AI Supercycle. Some investors may feel hesitant to invest in AI startups because of higher rates, but they are likely to make the same mistake as these investors back in 1995. You don’t want to make the same mistake, right? I’m inviting you to participate in the AI Supercycle by owning private shares in TradeAlgo. We are building a new AI platform where it will simulate millions of trades on historical data. There may be some patterns emerging, and the AI would theoretically be able to recommend trade ideas that exploit them. And we want to open it to retail investors. In other words, we want to put AI/ML technology into retail investors’ pockets and level the playing field in investing. 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