Adapting Episode 2: Sequoia’s Black Swan Memo (with Roelof Botha)

This Adapting episode, recorded twenty days after Sequoia Capital published what it called the Black Swan memo (March 5, 2020), brings on the person the hosts consider best placed to tell the story: Roelof Botha, a Sequoia partner since 2003 who led early investments in Instagram, YouTube, and Square, and who now leads the firm's US business as one of Sequoia's three stewards alongside Doug Leone and Neil Shen. Before Sequoia, Botha was PayPal's CFO — directly relevant here — having navigated the company through the dot-com crash, its IPO, and the $1.5 billion sale to eBay.

The hosts read the memo's core back to him: having weathered every business downturn for nearly fifty years, nobody ever regrets fast, decisive adjustments; in downturns, revenue and cash fall faster than expenses; and, as Darwin surmised, survivors are not the strongest or most intelligent but the most adaptable to change. Botha's account of writing it is one of nervousness that the world was not paying attention: as a global partnership, Sequoia was watching its China business and partners under full lockdown, and after 48 years of cycles the firm felt it had seen this movie before — like watching an accident happen in slow motion, with a duty to do something about it.

The timing was aggressive: the memo went out six days before the NBA shut down its season, a week before general American awareness caught up. Botha acknowledges the risk — Sequoia does this very infrequently, and the last comparable action, the RIP Good Times memo at the end of 2008, was never even intended for publication. In 2008 he heard people claim Sequoia caused the crash ("as if we had that kind of power") and complain the firm was being alarmist. His answer then and now: maybe people will be uncomfortable, but the firm has an obligation to say what it sees coming; if it turns out not to be that bad, he would gladly eat humble pie — putting the warning out matters more.