When Sequoia Capital partner Matt Miller was in Toronto for a Startup Grind fireside chat at Pivotal Labs recently, I asked him why the Silicon Valley venture capital firm doesn’t have a Toronto office.
The rationale I gave to Miller is this: Sequoia likes the odds of investing in startups that serve enterprise markets and if there’s one thing Golden Horseshoe startups do really well, it’s enterprise. There’s over 30 years of outstanding tech startups, from Alias and SideFX to Blackberry and Sandvine. Another clue to the potential here are the hundreds of thousands of expat Canadians working in the Valley – so why not stake a claim on the mother-lode?
How did Miller respond? With outstanding grace and candor. And if it wasn’t the answer I wanted to hear it did make a whole lot of sense.
Miller said Sequoia’s strategy is to stay small. There are just 16 partners in the Menlo Park office. Each one looks at roughly 1,000 deals a year. Out of that deal flow each partner makes 1 investment a year.
Sequoia segments the market into seed- and later-stage investments.
Seed-stage investee companies get a high intensity dose of Sequoia love. Sequoia believes that money is the least important part of what it contributes at this stage. It’s far more important to help make those crucial first hires, introduce founders to the right go-to-market partners, that sort of thing. They’ve found that for this magic to work, lots of face time with founders is key.
So, Miller and his partners want to be within biking distance of the offices of their seed-stage investees.
For later-stage companies Sequoia will invest in companies that are (much) further afield. He still doesn’t see Sequoia opening more North American offices any time soon. The culture gap between the Valley and a city like Toronto is just not that gaping. The offices Sequoia opened in India, China and Israel are there because the culture gap is much wider.
To spot opportunities in the rest of North America, Sequoia does cultivate a network of scouts, people like Michael Cayley. But Sequoia’s interest in Toronto is strictly in later-stage companies.
Given Sequoia’s track record I can’t argue with its strategy.
One more conclusion: cash is a commodity. Some Toronto investors have recognized this and have ramped up what they contribute to the operating side of the companies they invest in. More investors need to follow suit.