Sequoia’s partners go into investment decision meetings to determine whether startups make the cut — and there’s a system for striking gold, two partners said.
In an episode of the “Jack Altman” podcast released on Tuesday, Sequoia partners Alfred Lin and Pat Grady shared how their team decides which startups get a cheque.
“We’ve been recording the number that everybody votes on every investment for more than a decade now,” Grady said. “Our internal data shows that consensus versus non-consensus does not matter at all.”
He added: “Presence of conviction is what matters.”
The storied venture capital firm, based in Menlo Park, has invested in companies including Apple, Nvidia, Reddit, and SpaceX. Its more recent investments include prediction markets company Kalshi, and the legal tech startup Harvey.
Grady, who has been with the firm for nearly 19 years, explained that before a startup gets a yes or no, everyone on the team votes on a scale of one to 10. A score above six is considered “positive,” and a score of four or below is considered “negative.”
“If everybody’s a six, probably shouldn’t make the investment. It’s consensus, but nobody has conviction,” he said. “If three people are nines and three people are one, we should probably make the investment because the presence of the nines is a much more powerful signal than the presence of the ones.”
Lin, who has been with the firm since 2010, said they follow this strategy because the firm is in the business of risk-taking.
“We need that volatility because the truth is not somewhere in the middle where everybody agrees,” he said.
The partners said that they train their junior investors, who are historically “A+” students, to build a risk appetite.
“A lot of the people that join our team haven’t had much failure, and we have to help them get comfortable with it because otherwise we’re not going to get the outlier wins,” Grady said.
