In September 2001, Botha had been promoted to Paypal's CFO, and he only had $30 in his bank card at the time. Fortunately, he sold some stocks before Paypal went public and paid off his student loans in one go. It was a huge relief at the time. This choice also changed the trajectory of his life. He was subsequently invited by Michael Morris to join Sequoia and led investments in many well-known Silicon Valley technology companies, such as YouTube, Instagram, Square, Unity, MongoDB and Tumblr, etc.

Botha believes that there are moments when such choices are proactive, like when Nvidia CEO Jensen Huang noticed something strange in 2012 when GPUs his company produced for gaming consoles and computer graphics started showing up in research labs and academia. , and when running on Nvidia processors, machine learning calculations that originally took weeks to complete are shortened to hours. This technology has no commercial application yet, but Huang Renxun saw a distant opportunity at the time and seized the opportunity, and repositioned NVIDIA was able to implement AI, which was considered very dangerous at the time, and it took the market a full decade to understand the importance of Huang's bold decision until ChatGPT was launched in 2022.

But sometimes, external factors can have a forcing function of transformational change. A powerful example is Airbnb CEO Brian Chesky's complete repositioning of Airbnb during the epidemic. At that time, Airbnb was preparing for an IPO. Due to the epidemic blockade, Airbnb's revenue plummeted by 80%. Chesky Against this background, in less than two years, after increasing community investment and adjusting the product for long-term accommodation, it was finally listed at a valuation that was 1x higher than the original plan. This is what Botha calls "Crucible Moments" , the lower the spring is pressed, the higher the rebound will be.

Jason Calacanis

I'm wondering what you think the current state of the HE Tuber venture capital market is going to be like in the second half of 2023 and 2024 coming up? And what are your views on the 3-4 year peak bubble we experienced between 2019 and 2021?

Roelof Botha

There are many issues involved. I think maybe we can talk about the craziness first, which is the combination of a pandemic and very loose monetary policy, because at the end of the day, we're in an era where the cost of capital is essentially zero, and that's leading to a lot of investment, and that's leading to a lot of speculation .

Honestly, a lot of companies are doing some pretty rational things. If the cost of capital is zero, there is no difference between returns tomorrow and returns five years from now. So it's quite rational for companies to increase their burn rate, increase spending, R&D, sales, marketing to build future commitments. As the cost of capital returns to normal, people are more cautious about the return cycle. Where should you spend your R&D dollars? Which customer acquisition channels are the most profitable? So people are more disciplined in running their businesses.

At the beginning of this year, I predicted that there would be many companies that would beat 2023 earnings estimates. That's exactly what happened because there was a lot of excess in the system. Many companies have begun to pay more attention to cost and efficiency. So I think you can see that happening in public companies.

Jason Calacanis

Regarding cost cutting, this seems to be happening very quickly, unlike the last time we experienced it in 2008. Square has a well-known DAC (Deal Activity Committee). I want to know what you think is the reason for the very rapid response from startups and even public companies this time.

Roelof Botha

I think in retrospect, the global financial crisis was quite short-lived. The fourth quarter of 2008 was painful. But the government response in terms of fiscal and monetary stimulus, that era was rapid, and in 2009 things started to recover very quickly. This time is different because the financial impact spans many different industries. Coupled with the ongoing blockade in China, the outbreak of war in Europe affected demand for many companies in the region, and there was a longer-lasting sell-off.

Frankly, governments don't have much room left to implement fiscal stimulus like they did during the pandemic. Monetary policy is tightening, no longer loose. So all of these variables combine to create a more protracted situation where people are feeling the pain and they need to adjust.

Jason Calacanis

What impact does this ultimately have on the ecosystem? Because the ecosystem in Silicon Valley is very fragile. You and I have learned this over the last 20-plus years, you've been an investor for over 20 years and I've been an investor for 13 or 14 years, what's the current state of the ecosystem, what do you think future?

Roelof Botha

I would say there's a period in 2022, especially in the second half, where it feels like most of the world is in shock and people are reassessing, trying to figure out what's going to happen next, because the sell-off is across every asset class. This is not just technology, not just stocks, but also bonds, real estate, covering a very wide range. A lot of companies have basically been stuck for a while, trying to figure out where do we go from here.

Now, as you know, many of the greatest companies are born during these tumultuous times, because the founders who start companies and run successful companies during these times are true missionaries, not mercenaries. So a lot of fringe ideas won't work, a lot of fringe companies won't survive, and that's a very healthy natural system that generally exists in technology where talent gets reconfigured and they start working on other interesting projects .

So that's part of the resurgence of enthusiasm that we're seeing in machine learning, particularly some of the generative AI capabilities that are now bringing another wave of innovation to Silicon Valley. It's really breathing new life into Silicon Valley that I haven't seen in years.

Jason Calacanis

What are "Crucible Moments"? Obviously, you and I have seen that successful founders are sometimes not easy to work with, they sometimes have strong personalities, and they always have to go through some terrible experiences to get to the new world. Maybe you could explain a little bit how you feel about this.

Roelof Botha

A long time ago, when I joined Sequoia, when Don Valentine was still here, he came to me in the first few months of my time at Sequoia, and he said, Roelof, there's a 2-by-2 matrix. The people we invest in. On one axis it's easy to get along with, on the other axis it's great, not too great. We typically make money in these four quadrants, and your job is to figure out which one it is.

So like you said, founders are people who see reality and don't accept it, they change reality, they see a vision of the future. I think being able to tap into the energy of all these founders is incredible.

So the idea behind what we talk about "Crucible Moments" is that building a successful business requires a lot of execution. But the reality is that every year there are one or two very important decisions that have a huge impact on the company's final results. We call these decisions “Crucible Moments.” These decisions are not decisions about what lunch we should serve our employees, that is not a “Crucible Moments.”

Obviously, international expansion is an important decision. Are you launching your next product? Are you making a bet on this key technology platform? Are you changing your business model?

These are “Crucible Moments” and the challenge is that they don’t appear on their own. They're not going to knock on your door and say, hey, I think you should think about this. Sometimes there are crises. Sometimes it's responsive. If you think about what happened to Airbnb and Eventbrite during the pandemic, both companies lost 80% of their business in a matter of weeks because they both relied on in-person experiences, it was a "Crucible Moments" and it hit hard When the ground hits you in the face, you better be able to figure out how to respond very quickly, and both companies did that.

Of course, there are other Crucible Moments you can choose to do. So think about Netflix having to decide to switch from DVD shipping to streaming, that's a "Crucible Moment" that has a huge impact on your success. Great analogy to personal life. Each of us has several key decisions that have a huge impact on your career.

Your decision to move to Silicon Valley was a "Crucible Moments" you made a long time ago, and your decision to sell weblogs to AOL was also a "Crucible Moments." Some of the key investments you make in your life, those are Crucible Moments, so at the end of the day, we want companies to pay attention to those Crucible Moments because they don't always spend enough time thinking about those issues. So the danger is that you might miss a crucial decision that could set you on a great path in the future.

Jason Calacanis

Once you've identified these decisions, how do you make the right ones? How can you harness all the best insights and perspectives to help you achieve a great result and a great decision? And then there's a third aspect that I think is often overlooked. Honestly, this is something I've made mistakes on a lot of times myself, which is you make the right decision, but you don't realize all the ramifications of that decision.

Roelof Botha

If your business moves in this direction and you choose to be a cloud-first company rather than an open source company, now you're running a service instead of shipping software. You need the right people. You need to know how to manage a marketing funnel. You need to understand how to deliver five nines of reliability to customers who rely on you to operate cloud services on their behalf. So under the new framework, there will be a lot of knock-on effects on how you operate.

First, you have to understand whether this is a "Crucible Moments" or not, lunch in the cafeteria will obviously not affect the company's location. Maybe your remote work policy. These things may have become "Crucible Moments" at this moment, and it is already a critical moment to make the right decision.

The second is, hey, you've made the decision to stop shipping DVDs, now what are you going to do? Clearly, Quick Star or whatever it was called was a bad decision. They revoked it. But they seem to have made the right decision in terms of investing in content, right? They're not just online anymore. They decided on the second "Crucible Moments" of the Netflix case.

Jason Calacanis

Do we even have to make our own IP? Do we continue to buy IP from Disney? It sounds like they've made a very good decision, as the company's value has grown significantly in that time. This is something you and I both talk about, you make these investments and even though they do very well in private companies, oftentimes they do even better when they go public.

As private companies, Amazon, Netflix, and Google are not even doing anywhere near what I think they are doing as public companies. I wonder if that's still true today, or if we haven't had enough time to look at companies like Facebook, Uber, Airbnb, and some of the companies that stood out in the last public company cycle like Doordash, Square, etc. , what do you think about this?

Roelof Botha

In terms of how much the market value has increased since listing. Except for those companies that went public at the market peak in 2021, overall, the vast majority of market capitalization was accumulated after listing. Taking Google as an example, 98% of the company's market value today is actually increased after the IPO. The situation is similar with MongoDB. The company went public at a price of $23 per share, and the company's stock price today is approximately $400 per share. , so 95% of the company's market capitalization occurred after the IPO, and they only went public about seven years ago. So there are many companies with such examples.

Interestingly, the median company, the average company is trading below its unlock price. As a result, more than 50 tech IPOs have been unable to recover their share prices for six months from the IPO date. The key is to identify which companies are legendary, which ones have breakthrough potential, and which ones have management teams that are willing to go through re-entrepreneurial moments and imagine a better future for the company. This is a quote I love from Jack Dorsey, who was at Block, formerly known as Square, talking about the company having multiple founding moments.

Today, about half of the company's revenue comes from the Cash App service, which didn't exist until about five years after the company was founded. That was a completely new idea, and they moved from the small and medium-sized business market to a completely different area, which was individual consumer financial services. There are a lot of questions within the company. Why do we do this? This is actually a big touchstone moment, right? How contentious this discussion is within your management team is actually a very interesting metric for assessing what is critical and contentious.