Welcome to this classic episode.
Classics are my favorite episodes from the past 10 years, published once a month.
These are end -of -one conversations with end -of -one people.
There's nobody I've met quite like Doug Leone.
Incredible drive, energy, and aggressiveness.
Also, one of the great voices to listen to.
A fearsome competitor and builder, I listen to this at least once a year.
I hope you enjoy it.
Hello and welcome, everyone.
I'm Patrick O'Shaughnessy, and this is Invest Like The Best.
This show is an open -ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money.
If you enjoy these conversations and want to go deeper, check out Colossus Review, our quarterly publication with in -depth profiles of the people shaping business and investing.
You can find Colossus Review along with all of our podcasts at joincolossus .com.
Patrick O'Shaughnessy is the CEO of Positive Sum.
All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum.
This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of Positive Sum may maintain positions in the securities discussed in this podcast.
To learn more, visit psum .vc.
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My guest this week is Doug Leone.
Doug led one of the world's most successful venture firms, Sequoia, for over 25 years after he was given responsibility for the firm by its founder, Don Valentine, in 1996.
Alongside Mike Moritz, the pair managed its expansion from a single $150 million early stage fund to an $85 billion global powerhouse.
It was a privilege to sit down with Doug and learn from him.
We talk about his tough start at Sequoia, get into the technicalities of great go -to -market motions, and survey his advice for other investors in the industry.
A key theme that will stick with me from this conversation is Doug's insistence on keeping things simple and clear.
Please enjoy my great conversation with Doug Leone.
Doug, I've heard you interviewed elsewhere, and I wanted to start our conversation somewhere a little bit more unique.
I'd love you to talk about the heart and mind of Don Valentine.
I've learned a lot about him, obviously someone that was influential on you and a key figure in the history of this style of investing, of our style of investing.
Maybe start with his heart.
What was his heart like?
Truth be known, for the first 20 years, I did not know whether he had a heart.
It was all pure business.
It was all for the cause of generating returns for our clients, most of which are endowments and foundations.
So for the first, I would say, 15, 20 years, he was visionary, but extremely tough and certainly dedicated to the cause.
At his eulogy, I was very amused and interested to find out from his kids that they spoke of him as having his huge heart when he went home.
And it was really interesting how he segregated his work life from his home life.
As he got older and developed a sense of history and put himself in perspective of other leaders, there were certain things he did not want to do.
He did not want to be one of the older folks that stuck around too long.
He had images and knowledge of other leaders his age or a little younger that were falling asleep in meeting and there was starting to be a drag on their partnerships.
And he was very cognizant of not wanting to do that.
And the other thing he was very cognizant of is, boy, how do we leave Sequoia in the best possible place for the next generation?
And it was interesting that he chose, and I say chose as if he's pointed us out, he had his own subtle way of choosing, assigning Carrie, maybe two of us at 10 % more than the other folks.
That's how he chose leadership, that he chose younger folks that he was willing to mentor.
And I would just say that the heart showed up and it was a transformation, not a transformation out of weakness, but a transformation out of wisdom.
And you get to see his heart and how much he deeply cared and how much he cared to mentor and how much he loved youth and how much he loved new ideas and so on.
So very, very, very interested, very interesting human being for the time in which he lived.
He would sell shares at 2 billion, not buy shares at 2 billion.
Back in his day, if you reach 2 billion or 3 billion, that was a huge exit.
So there was the learning curve of a world that was changing at a rapid pace.
He understood that he wasn't going to adjust to that world.
He got out of the way.
He never asked a question unless he was asked.
The only comments he made once he stepped down, comments when he was asked for his opinion.
I found that extremely interesting.
He was the ultimate of what the, if you will, the old king should do.
In fact, I model my behavior, now being the old king, to his.
Never intrusive, always helpful, always ready to assist, but never second guess.
You mentioned his toughness in the earlier years.
Maybe draw the spectrum for me in terms of what was the most productive part of his toughness and if there was any unproductive part of his toughness.
It feels like this is an era where that word toughness might become important again.
I remember attending a meeting with a founder.
And as we walk out of the meeting, Don only wrote in greening, yellow pads and greening.
And in green ink, he left a note on the table, said, Doug, not fit to listen to founders.
And he just left it there for me to see.
And in this new day and age, everybody wants weekly feedback.
Why should I do better?
And this and that. Let me tell you, you read that note from Don Valentine, that's all the feedback you need for the next 12 months.
You have to break that feedback down.
What does he say that?
And you certainly don't go in his office and say, Don, what do you mean by that?
You know what you mean.
and you understand maybe you were too aggressive, the wrong style.
The other side of being too tough, he was tough on founders.
But keep in mind, we were dealing at a time where we were investing in semiconductors.
The founders were not the 22 -year -old who created new industries because of the internet or mobile.
There were engineering managers at a chip company that started a new company, maybe ages 40 to 50.
Those founders, once they misbehave or something goes wrong, they really can't be saved.
They're too opinionated, too big, as opposed to a 22 -year -old that you certainly can make head of products or head of strategy or head of something.
So it was a different time where the aggressiveness to those founders was far greater, which if you implement that in 2023, it would ruin your reputation.
That's both the good side and the bad side of being tough.
I think you have to overlay the issue of time.
Maybe that was appropriate for 1978.
It certainly would not have been appropriate in 2020.
But internally, he knew how to get you going.
And it wasn't the same style for everybody.
He happened to know that I needed a good bash on my head to reprogram myself.
He knew what I needed.
But on the other hand, just to give you a little sense, when everybody wanted me out as an associate because I was insufferable, it was Don that saw something.
and said, quote, give the kid more time.
So within that toughness, frontally, there was enormous support when you weren't looking.
And boy, I think that's the best way to lead and manage.
I've gotten a bit of feedback on your style now that is sort of the opposite of insufferable and that you weren't fit to listen to founders.
I've heard that you're actually a great interviewer.
I want to come back to that.
And not that you're insufferable, but that you're like caring.
What caused the change?
And maybe to begin, what did insufferable and not fit to listen to founders mean when you were young?
To answer the second part of your question, it meant essentially being an unguided missile.
It means overcompetitiveness, do what it takes.
Doug, go take that hill.
I went and took that hill because that was the mission and the cause and nothing else really mattered.
And immaturity plays a role, lack of experience plays a role, and quite frankly, lack of track record.
So you are a no track record, abrasive, pain in the ass young man with a New York accent and clearly a kid from the street.
Well, that doesn't play, that's really not the best marketing message.
Now, some people saw through that and they saw a genuine human being.
and it worked well in those cases.
Contrast that with now.
I have a bit of a track record.
I am a little more mature, a little smoother, you know, a coat of paint, not to mislead, but that's the way you lead your life.
A little more wisdom.
Suddenly, I went from insufferable to charming, and I'm aware of that.
And I chuckled because I was not as insufferable then as I was viewed.
And I'm not as charming now as I'm viewed.
But I'm very well aware of the Markham transformation.
And I find it amusing just understanding what human nature is.
Everybody tries to position things.
And now the world is full of baloney.
And three quarters of stuff you read is not true.
Blah, blah, blah, blah, blah, blah.
I spent a lot of time talking to your partner, Ravi, about demons and the demons that are in certain people for whatever reason, and the ways that those demons can motivate or drive entrepreneurial type people to enormous success.
And one of the things that Ravi told me was that you are extremely good at sussing out a person's core motivation via listening, ironically, given Don Snow to you.
And I'd love you to talk a bit about that skill and why you think it's so important to understand someone's core motivation?
First of all, when we look for founders, we also look for Sequoia partners, investors, young people.
The same set of traits, use the word insufferable, use the word he doesn't listen, she doesn't listen, or he's belligerent, she's belligerent.
Those that other people may view as a negative, we actually view as a positive because in order to get something done in life, you can't just walk down Main Street and be a sweetie pie.
We look for outlier people, whether it's founders or investors.
And outlier people do extraordinary things.
Outliers, what do I mean by that?
Extra driven for whatever reason.
Maybe daddy told them they weren't good enough and they want to show daddy how good they are.
Maybe they have a twin brother.
Twins are where we have competing with one another.
They love one another, but they compete with one another.
Maybe they fail miserably in their first startup.
They're embarrassed and so on.
So we look for those things.
And sometimes, believe it or not, genetics.
I've actually met some people that I'm now convinced they were just wired that way.
And I try to look for that for the simple reason that I view that to be the greatest advantage, but could be the greatest weakness if not channeled appropriately.
So one, I look for it to see if it's there, because I like to be at there.
Then I look to see what it is and whether it's on the right side of this good versus bad trait.
And thirdly, because once we understand it and then that's the good side, then how do we channel it, complement, and make sure this incredibly wonderful, insecure, scared, because that's what we all are when we're coming up.
How do we help them as if we were their brothers to achieve maximum type of success?
So I dig for that. I just really want to understand what makes this person tick.
And to me, the greatest question is why?
Why, why, why? When someone says, I was recruited by, I hear I was lazy ass sitting down.
I got a call from a recruit.
I was nothing better to do.
I got suckered into listening to something.
I got sweet -talked.
Then I talked to a company that made me an offer.
I wasn't too happy about my job or a little bored, and I went.
To me, that's what I was recruited by sounds like.
The converse to that, of course, is I was sitting on a job.
I saw an opportunity in a market segment that I didn't know existed.
I called seven or eight companies.
I realized this is the leading company.
I called the companies.
I found a way to get a meeting.
I sold my way in. I got an offer.
I negotiated. I took a job and I went, whoa, what an answer.
So those are little things I look for when I interview people.
In addition to asking why in lots of different ways, are there other favorite questions or topics that you find yourself returning to over and over again as you're getting to know people?
I want to know the upbringing.
I want to know what kind of kids they were, their journey through life, their maturation through life.
I love to ask whether they have a sibling to describe three adjectives for their sibling, their close sibling, and three adjectives that describes them by comparison.
I don't really care about the sibling, but you start learning things.
I love asking the setup question of where would you get your best reference?
And they're eager to tell you that.
Complete setup question, because the next question is where would you get your worst reference and why?
And again, I'm not looking to nail anybody.
We've all had journeys that are up and down.
Very few of us have had a linear up journey.
But just understanding, looking for self -awareness.
Because self -awareness means breaking problems down to first principles and meaning using your experience to solve a new problem.
While we love best athletes, if we find best athletes with a little of experience and first principle thinking, that's a home run.
And we look for that.
How much time do you think it takes on average to really understand somebody?
I hate when they set me up for 30 minutes.
I said, forget it. The first 30 minutes is all makefully.
Got to let people let their guard down.
And then if you really want to understand someone, I think it probably takes two to three hours, including a dinner when people do relax and start showing you things, you know, and you want to see how people place orders and you want to see what things they say, you know, I always like to put salt on my
food. Well, that tells me you're high -wired and you're not open to new ideas.
The old classic how you treat a waiter or a waitress, boy, that really drives me crazy.
The questions I asked, that's not asking me, well, Doug, I'd like to ask you about your journey.
Why would you ever want to ask me?
You're in a job interview, you got to want to learn anything about the role, who you're going to be reporting to, what you're going to be doing every day.
If you succeed, why will you succeed if you fail?
But the last questions.
Doug, let me understand about journey.
That's a made up question.
Who cares? That's certainly a question I wouldn't ask somebody if I had 10, 15 minutes to ask about a new job.
So I think maybe the answer to your question is maybe one or two meetings and a dinner.
What were the most formative experiences that you had prior to becoming an investor that you think most impacted how you functioned as an investor?
I know you were an excellent salesperson at early jobs at HP and Sun and Prime.
But what specific experiences stand out in memory as the most impactful on you?
So I remember when I had my first job at Hewlett Packard and two guys, they looked like they were six years old.
Maybe they were 40 and I was 22.
They said, we'll split Manhattan into thirds and you don't have to be in the median when we split.
And, you know, as a naive young guy, oh, I'm going to get third of Manhattan.
Well, I got Northland 96th Street in Manhattan.
Northland 96th Street now is cool.
Let me just tell you, Northland 96th Street in 1979 was not cool.
It was downright unsafe.
And the formative part is that for me, I didn't give up.
And you always ask yourself, how do you turn a negative into a positive?
And I was lucky. You know, luck does play a little bit of a role.
I was lucky that there was Columbia, the university up there.
And there was a head of computer science called Traub that just came from Carnegie Melon, and he was big in open systems and Unix, and he drew me a graph with the ARPANET.
I never knew what the ARPANET was, which was a predecessor of the internet.
So a little negative turned into a little positive and with a little bit of success.
And then joining Sun Microsystems, or in some ways we're shooting ducks in a barrel, and just coming up with a business plan that we could be successful on Wall Street.
One of the biggest market segments for Sun, it's all the trading stations and breaking that market down and learning to use the we pronoun.
Here's what being smart and not greedy.
Whenever I sold something and somebody helped, I insisted on commission splits and those things.
And I understood management took an eye of that.
Well, not only is this kid selling, but look, everybody loves it.
He's taking care of other people.
And next thing you know, they had an eye on me.
And boy, I took note of that, right?
Okay. that, ooh, that's how you do things.
And the other thing is the mistakes that you make when you're too aggressive, when you're too hardcore, and you say, boy, I don't want to do that.
And the people that you meet, you meet two kinds of people that teach you, the one that teach you what to do, and the ones that teach you what not to do.
And the trick for me, I never understood when the father is an alcoholic or is an abuser and the son becomes an abuser, because I have to you, I've had some tough rides, but I made a promise to myself that if I ever became someone, I would not do one to others as I was done to.
I thought that was disgusting.
I thought it was very upsetting.
And when you've come to Sequoia, when I was running it, I made sure everybody respected the people that feed us.
You better put your plate away.
You better say thank you.
And so on, because it starts at the foundational layer.
And if you do that right, then the culture starts being right.
And if you share your winnings, and if you just don't talk the talk, we are a team.
