The investment company Sequoia Capital has no shortage of in-house programs for the founders it supports. The idea is to help its startups not only through their affiliation with Sequoia, but by helping them from the start with everything from storytelling to recruiting strategies to give them an edge over rivals.

Now Sequoia is using some of that know-how for a longer, seven-week program called Arc, which uses it to recruit even more promising founders. The idea is broadly to invest $1 million in each company that meets the company’s criteria, then Sequoia brings the startups together both in person and virtually before coming back together to showcase what they’ve learned from the partnership – together with potential customers.

Currently, 17 startups are completing the program in Europe and about the same number will be welcome in a program in the US and Latin America in September. (Startups can apply) here until July 22.) For more information, we spoke today with Sequoia partner Jess Lee, who is leading the initiative this fall. We also spoke with Lee about whether Y could see Combinator Arc as a competitor, the deal terms that startups should never be allowed to accept, and more. Our chat has been slightly edited for length.

TC: Arc is an outgrowth of Sequoia’s internal programs?

JL: That’s right. There’s so much that goes into building a great business, and what we’ve tried over many years to do, across multiple programs, is to sum it all up in fundamental business concepts on topics like culture, hiring, product, customer obsession, and business model, and [we’re] packing that into arc.

You have received thousands of applications for the Europe program. Who reads all those applications?

All investors at Sequoia in the early team read them. We spoke to many, many founders who applied and ended up with this wonderful class.

Each of these teams will receive $1 million dollars. What interest does Sequoia get in exchange for its capital? Is it 10%? More?

We have flexibility around the terms. What you said would be pretty typical of some people for whom this is the first check. Then there are some people who were already raising their seed round, and so we put $1 million into that round; [others] even opened their last round of joining the program. So there is definitely a small range. However, most companies are pre-seed or seed.

The program uses the word “outlier” to describe what it wants to fund, but it sounds like Sequoia doesn’t mean “outlier” to mean it’s looking for founders from non-traditional backgrounds.

We are truly looking for founders who want to build sustainable, transformational, category-defining companies. † † that tap into a new market. There is no one we would exclude, but it is more about the scale of ambition.

What is an example of a European team in Arc creating a new category?

One that I find really fascinating is Choice Options† Its founder is Martin Gould, who I believe ran a 100-person product organization on Spotify. He is quite experienced. And he noted that what Spotify did so well was to narrow down — by understanding your taste — what you might like, solving the paradox of choice. Now he’s trying to do that for different categories in books, food destinations, and travel.

What time commitment is there for Arc participants on both sides?

The first week is personal and the last week is personal in the Bay Area. And then in week four we go on a group excursion together. In Europe we went to [Sequoia portfolio company] Klarna in Stockholm; the venue for America’s program is TBD. In between, it’s about an hour and a half, three days a week, usually with one of the Sequoia partners learning a concept and framework, or a founder or operator from the field sharing real-life examples of how they run their business. On Fridays, there is usually time for the founders to get back together for what we call a peer board, where they just get into their groups and share a little bit of what they’re doing.

It’s the seventh week for this European cohort, which means they’re almost done. Has Sequoia offered further funding to any of these startups?

It’s not a fundraising program, so no one expects a check at the end. It is not a demo day to raise money.

Speaking of Demo Day, I was recently reminded that Sequoia was an investor in Y Combinator many years ago and had a direct interest in the company. Is that still true?

We’re not an LP anymore, but I think we were many, many years ago; that is definitely true.

Looks like Arc is competitive with YC. Do you think it could put a strain on that relationship?

I actually think it could be quite complementary. YC is fantastic at giving speed and helping fundraisers. I think our program is more focused on building a business over the long term, and I can totally imagine someone going through both.

Take a step back, the market has shifted. A lot of ‘structure’ is being introduced into deals where this was not the case before. What terms is Sequoia most familiar with? What are some of the terms you would advise your startups never to accept?

With my former founder hat – as well as my Sequoia hat – I’d say it’s better to avoid structure. Even a clean-term round is probably better because you can wrap yourself in structure and tie your hands.

Another way to look at all of this is that 2021 was just an anomaly. The multiples, the public stock market, the incentive – it was just an anomaly. If you look at companies and take the 2021 valuations off the map a bit and look at your 2019 or 2018 trajectory, that might be a better way to look at it. † † I think our returns are actually somewhat correlated with that based on the analysis I’ve seen.

In the meantime, some founders may be wondering why they need to cut spending as they see Sequoia and many other companies continue to increase billions of dollars when investing capital.

Venture firms operate on the order of decades. Each fund traditionally has a 10-year life cycle and the idea is to survive these market cycles – the highs and lows.

We are [closing] our growth and venture capital funds now, and they are right on time. We increase them every two to two and a half to three years. So there was no real acceleration.

What we did do was change our structure a bit. We added the Sequoia Capital Fund, so the venture and growth funds are now sub-funds of the Sequoia Capital Fund, and the Sequoia Capital Fund can hold public companies and is designed to allow us to break that 10-year cycle [where] you have to give yourself [investors their] distributions and instead let’s manage the money from our LPs over time in the companies that build over time and are really generations. We did some backward looking math and found that if we really had it for our LPs’ [shares] and [they hadn’t cashed out these shares upon receiving them]we would have come back much more.

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