Roelof Botha shares what Sequoia’s Black Swan memo got wrong

Published September 15, 2020

In March, famed investment firm Sequoia Capital published the Black Swan Memo, warning founders about the potential business consequences of the coronavirus, which had not yet been labeled a pandemic.

“It will take considerable time — perhaps several quarters — before we can be confident that the virus has been contained. It will take even longer for the global economy to recover its footing,” the memo read.

Six months later, Sequoia’s Roelof Botha is “surprised” at the state of venture capital and startups in the country, which are largely benefitting from — not struggling with — from COVID-19 tailwinds.

VCs are pouring money at a rapid clip into edtech, SaaS, low-code and no code, as well as telemedicine. In some cases, investors say venture funding has been hotter than ever ahead of the U.S. elections, beating not just March 2020, but 2019 records overall.

Sequoia, it seems, is happy to be wrong. This week, Sequoia Capital will have backed three of the 12 companies going public: Sumo Logic, Unity, and Snowflake. Snowflake is expected to go out at $30 billion valuation, which some say will be the largest U.S. software company to ever go public. Beyond the firm, numbers of unicorns are gearing up, or teasing, to go public in the coming weeks.

“I’m proud of the fact that we saw a few things and anticipated a few things,” he said during TechCrunch Disrupt. “But we also got many things wrong.”

Botha pointed to a few factors that saved startupland from freezing up. First, he said the U.S. government’s stimulus package helped make sure that there was not a “complete economic meltdown.”

“I didn’t quite expect that scale reaction,” Botha said. He’s referring to the $2 trillion CARES Act passed by Congress and signed by President Trump, which included PPP loans designed to provide a direct incentive for small businesses to keep their workers on the payroll. Tech recipients included Bolt Mobility, Getaround, Luminar, Stackin, TuSimple and Velodyne.

Botha addressed how tech companies have helped sustain businesses and operations amid the pandemic, which has trickled down to new customer growth and revenue.

Zoom, a Sequoia portfolio company, might be one of the best examples of how a tech company was poised to skyrocket during the pandemic. According to Botha, the firm, which still owns shares in the company, wishes it had held onto more of its position longer. Sequoia invested in Zoom when it was valued at $1 billion. Today, it is worth more than $100 billion, graduating from an enterprise videoconferencing service to a household consumer product.

To be fair, some of Sequoia’s warning signs proved true: Layoffs inundated Silicon Valley; companies shuttered citing a drop in revenue; and the market remains volatile.

“We also have to realize there’s a lot of pain and there are many mainstream businesses and local services and restaurants and coffee shops that often suffer economically,” he said. “I don’t want to be overly sanguine just because technology stocks have had a good run. As a country, we need to brace ourselves for helping everybody.”