Sequoia Capital has funneled millions of dollars to scores of well-connected entrepreneurs and academics, who invest and look for ideas
Startup investor Jason Calacanis took a $25,000 gamble five years ago on a company almost no one had heard of called UberCab. That investment in what is now Uber Technologies Inc. has ballooned to roughly $110 million.
Mr. Calacanis has never said publicly where the money came from: Sequoia Capital, one of Silicon Valley’s biggest venture-capital firms. Since 2009, Sequoia has funneled millions of dollars to scores of well-connected entrepreneurs, academics and other people known as scouts.
Scouts invest the money in startups and keep their eyes and ears open for ideas that Sequoia might like. Mr. Calacanis introduced Thumbtack Inc.’s founder to a partner at Sequoia, which bought a stake in the local-services website that has since surged 50-fold, research firm VCExperts estimates.
Thumbtack’s founders now steer tips to Sequoia, too. “Sequoia had been great to us, so we were happy to send other high-quality entrepreneurs their way,” says Marco Zappacosta, chief executive of Thumbtack. He has made a few startup investments of his own using Sequoia’s money.
The secretive ecosystem of cash and connections is an unusually powerful example of how venture-capital firms try to gain an edge in the never-ending hunt for the next blockbuster. That search has gotten trickier now that some startups with sky-high valuations are hitting turbulence.
Most of Sequoia’s scouts are entrepreneurs whose startups were funded by the firm. That means they know a lot about what Sequoia is looking for and will recommend the firm to other entrepreneurs.
Forging tight relationships that generate new deals for venture-capital firms is more important than ever as the cost of creating startups falls. The resulting acceleration in company launches has made it harder for venture-capital firms to identify the best opportunities as startups emerge. And competition is growing as new investors who are flush with capital invade the technology world.
Sequoia has been a mainstay of the venture-capital establishment for decades. Based in Menlo Park, Calif., on Sand Hill Road, the Main Street of Silicon Valley’s venture-capital industry, Sequoia made early bets on many of today’s tech titans, including Apple Inc., Google Inc. and Cisco Systems Inc.
It was the only venture firm that backed messaging company WhatsApp, sold to Facebook Inc. last year for $22 billion. Sequoia invested about $60 million for a stake valued at $3.5 billion in the deal. Sequoia now owns stakes in 33 private,venture-capital-backed companies valued at more than $1 billion apiece, more than any other venture-capital firm.
THE question of when interest rates will rise gets frequent attention. Less energy is spent wondering where they will end up in the long-run. But for companies thinking about long-term investment projects, and savers planning for retirement—who will need to contribute more to their pension pots should rates stay low—the second question is at least as important as the first. Two new papers from the Brookings Institution, presented at a conference on October 30th, seek to answer it.
In the long-term, interest rates are beyond the control of central banks like America’s Federal Reserve. If the Fed sets rates too high or too low, inflation will veer off-course. Where rates must eventually settle to keep inflation stable depends on economic circumstances. In particular, it depends on what “real” interest rate—the return to saving, adjusted for inflation—balances the economy’s demand with what it can supply. This elusive sweet spot is called the “equilibrium real rate”.
A long list of factors should, in theory, affect the equilibrium real rate. Top of the list is economic growth. If the economy is expanding quickly, people will expect higher incomes in future, causing them to spend more and save less today. That pushes up the equilibrium real rate. Similarly, weak growth should depress the equilibrium real rate.
But James Hamilton of the University of California at San Diego and three co-authors put this relationship to the test using data stretching back to the 19th century, and argue that it is, in fact, quite weak. For instance, in the early 1980s real rates hovered around 6% while growth was a little over 1%, but in the 1990s both growth and real rates were around 3%.
A whole lot of other stuff matters for the real rate too, such as productivity, demographics, and conditions in financial markets. The authors say that this creates much uncertainty as to where the equilibrium rate is today; their best guess is that it lies somewhere between 0% and 2%. This uncertainty, they argue, should make policy more inert. Often, rate-setters assess whether policy is tight or loose by comparing real interest rates to the equilibrium real rate. But when they do not know what the equilibrium real rate is, their next best option is to make changes in rates respond to the data. Rates should rise when the economy looks too hot, and fall when it looks too cold.
On Friday, the United Nations released a survey of the plans laid out by more than 100 countries to fight climate change. Its report uncovered some interesting trends, including that most countries are planning to invest in renewable energy and that global adaptation efforts focus first and foremost on protecting the food and water supply.
But the survey also affirmed that all this collective global action doesn’t add up to keeping global warming below 2 degrees Celsius (3.6 degrees Fahrenheit), the internationally agreed-upon goal. That brought to mind the great interview with Bill Gates that The Atlantic, one of our Climate Desk partners, recently released. In the above video, Gates points out another key flaw in the international negotiating process: Most countries’ goals focus on the progress to be made by 2030—phase one of the global push to slash greenhouse gas emissions. The United States’ goal, for example, calls for cutting emissions by about a third by that time.
If we’re really serious about keeping global warming in check, Gates argues, we need to start thinking more concretely about what comes after 2030. The Obama administration has promised that the short-term goal will get us on track to cut emissions 80 percent by 2050. But Gates cautions that that second phase will much more difficult to achieve than the first.