Interview with Sequoia Capital Partners: How do you view the encryption cycle and future trends?

Original source: UnChained

Compilation of the original text: Huo Huo

Sequoia Capital was established in 1972, and it will be exactly 50 years this year. In the field of global venture capital, Sequoia Capital is the undisputed leader.

Since its establishment, Sequoia Capital has successfully invested in giant companies such as Apple, Cisco, Oracle, and Google, and has witnessed the shining moments of legendary companies one after another.

This article comes from UnChained’s conversation with two partners of Sequoia Capital, Shaun Maguire and Michelle Bailhe. The former has opened five companies and succeeded in three. The latter started at McKinsey and later served as the team leader of the Silicon Valley Creative Lab.

LinkLink。

Interview highlights:

• What is Sequoia's long-term view and thesis on the crypto industry

• How different our lives will be in 20 years due to blockchain technology

• How does Sequoia decide whether to invest in the entity behind the project or the token

• Does involving venture capitalists go against the spirit of decentralization?

• How Michelle sees the macroeconomic environment affecting cryptoassets and whether this cycle is different from previous ones

• What should crypto projects focus on and the business models they should pursue

• How Crypto Founders Should Always Do the Right Thing Even Without Clear Rules

• The Future of the Metaverse and How to Define It

• first level title

What is Sequoia's long-term view and thesis on the crypto industry

Moderator: I heard that Sequoia has launched a 500/600 million USD encryption fund. According to the news, this fund is for the layout of encrypted assets in the next 20 years, so what is it specifically?

Michelle：first level title

What's After 20 Years of Blockchain-Based Life

Moderator: What do you think our lives will be like in the next 20 years?

Shaun：First of all I think it's hard to say. You know predicting what crypto assets will be used in the next 20 or 30 years is similar to predicting how the Internet will be used in 90 years in the 70s.

I personally think that all money will be digital in the next 20 years, for example, the US dollar may become a digital tool of the government, and the adoption rate of decentralized currencies will increase significantly, especially in developing regions of the world.

The current situation of Uniswap is a good case, that is, you can use some very simple codes to make some very high-volume businesses run forever, and no one needs to maintain it, just release the code, and it is there. I feel like there are a lot of examples like this that give me a glimpse of what the future might look like, but you know, it's hard to get too specific.

Michelle：I totally agree with Shaun, I imagine something like the internet, it's fundamentally an information revolution, so it's hard to predict. Just like we couldn't predict that the Internet would become what it is today, no one would have predicted that Google/Mobile Internet would definitely happen today, but they were born.

first level title

Sequoia's decision on project entity/Token investment

Moderator: At present, many successful large venture capital companies come from the old investment model. Now this kind of start-up company or VC is very similar to a centralized company. In order to adapt to this new investment model in the decentralized new world, some restructuring, Investing in a large number of Tokens, etc., are they really decentralized?

Shaun：I agree with you, but there are many differences in the crypto industry, while there are many similarities between crypto and traditional business, for example you agree that you need to hire engineers and product people to help build the best PR, product, you need to pay and Managing them, building a crypto company has many similarities to building a traditional software business company.

But it's really not like what people think, you know Sequoia has been around for 50 years, and the biggest wins in the early days were Apple and Atari and some other hardware companies, and then in the late 80s and early 90s, Sequoia invested the most The success is the Internet infrastructure company, cisco is known as an example, and the core infrastructure of oracle is unknown. Whether it is really decentralized is not actually a superficial model.

Moderator: Let’s talk about your investment in encryption projects now. There is a centralized entity behind many protocols, so you can choose to invest in the Token of the project or the equity of the centralized entity that started the decentralized project. For example, I know you guys Invested in filecoin, so I'm sure you can choose to invest in filecoin token or protocol labs, how do you decide?

Michelle：Most of the time we have to solve the problem of consistency with the founders, we will require matching Token, which is very important. Now there are examples of inconsistent incentives everywhere, which will lead to unsatisfactory results. Of course, non-encrypted assets are just broader technical applications, so we always have to try to promote equity shareholders and discuss Token shares, ratios, etc. .

Now Token is widely used in encrypted assets, and actually there are many different things in my mind, some things look more like commodity relations, used to stabilize or protect the network (like Bitcoin or Ethereum or whatever) native tokens, and then you might have tokens that are tied to the success of your app, and then you have something that just looks like reward points, like it's basically airline miles, like it's not about the business, but it's just a way to Deal discounts or other things like supermarket points or airline points.

first level title

Does involving venture capitalists go against the spirit of decentralization?

Moderator: Had to ask a follow-up question because obviously you know Sequoia has invested in startups like door dash or airbnb, you might have heard some crypto entrepreneurs say something like, decentralization means they There will be tokens that incentivize different workers, so when you think about what about a certain product or service that can be offered on the internet, how do you make sure it makes more sense? Whether offered by a centralized entity or in a decentralized manner, or when are you planning to invest in crypto companies?

Shaun：This idea has been prevalent for the past 20 years, so it's a bit iffy right now, the main difference is whether it puts ownership of the early network in the hands of users to help incentivize early programmatic bootstrapping. Therefore, there will be some differences at the beginning, but the final state is not important, just like you know airbnb, suppose you have a decentralized airbnb, and you give up 50% of the equity as Token to motivate early users and early Mainframes and everything you have once you get to a certain scale, but there's also a lot of competition, and people want to use the best product, and a good product means having the most customer base, having the most liquidity, having more Good service etc so I'll just say the only difference is if you give away ownership early on to help incentivize usage but at the end of the day you have to have a better product because if your product isn't better than the alternatives people will leave and go to the next thing. So I think this is actually something that many web3 companies have not paid attention to.

Michelle：I agree, this desire for unfettered decentralization is gaining momentum, I think when you really dig into it, running something decentralized is actually inefficient, it requires more computing resources and more coordination to ensure that Well done, so our expectations of it fulfilling over time are actually quite luxurious.

You want to use it for the most important thing, and this is like pursuing statelessness freedom, you know, store of value and public information network, you don't want some government or some company you know to be the only one People who control, so it's kind of like a common problem that humans have always faced, people are always looking for how to best organize the government or the people, you can centralize democracy or you can make it more decentralized, but it requires a lot of cost and a lot of participation, So to optimize decentralization for the end result you want, and for other things to be easy to access or speed, a centralized business model is adopted.

first level title

How Michelle sees the macroeconomic environment affecting crypto and whether this cycle is different from previous ones

Moderator: There's been too much news recently, let's start talking about the bear market in general! Bitcoin was launched in 2008 during the last global financial crisis. Cryptoassets mostly exist in the U.S. in a roughly 0% interest rate environment, so what do you expect to happen in the next year? Where do you predict we are now in the crypto industry?

Michelle：I think it's just to prepare people when they see things, the crypto tree has grown taller in the crypto industry. So it will oscillate more when it gets hit, which doesn't mean it's going to disappear, or like the amount of dollars, maybe the amount is more but the value has dropped because they're more bulky. This period of change and volatility will feel greater than before, and that's because we have more users, more dollars, more liquidity, more regulatory attention than cryptoassets have ever had Yeah, so it's really just trying to get people ready.

first level title

How Crypto Founders Should Always Do the Right Thing Even Without Clear Rules

Moderator: Then the last point I want to ask you in your post is that you said to build a sustainable business token, but not a business model. What kind of business model do you think will work in decentralization?

Michelle：You know that Token is a really cool invention, like there are some really cool things in terms of regulatory dynamics, about finding this way of really getting incentives, you know there are a lot of very interesting things about rewarding users and rewarding early developers, And there are a lot of people who will use them again for real value, like ethereum or bitcoin and a lot of other things like that, it's really useful in stabilizing and securing the network, and there are other places where you know it works, But there are plenty of other items that have no real value.

There was a lot of excitement in the crypto boom of the last few years and maybe things were going up and everything was trading and you might see a lot of growth and then you thought, oh my god, we're doing something amazing , it is working.

But once the interest rate environment changes and flows out of the market, when liquidity does not exist, you will see the value of the project disappear, which is the situation of many projects now.

first level title

The Future of the Metaverse and How to Define It

Moderator: Do you have any expectations for what the Metaverse will become? Do you think VR, AR has to be a part of it or do you think it doesn't need to be right now, everybody's talking about the metaverse and I don't think there's a good definition so I'd love to hear your thoughts.

 Shaun：Oh my gosh, you're asking me hard questions! I thought about the metaverse, and I agree that there's no good definition of the metaverse at the moment, other than reading Neal Stevenson's book and liking his description of the metaverse, obviously the metaverse in which we ideally live. Anyway I think the metaverse could go two different ways, one is just the next big phase shift of the internet, it's hard, don't even know what that's going to be, but it's like when the internet evolves from today to unknown In the future, I will call it the Metaverse.

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Encryption industry mental model and stages of global implementation

Moderator: We talked at the beginning that there is a 20 or 30-year vision for the encryption industry, but Michelle, one of your blogs lists the application S-curve of blockchain technology, can you give a brief overview Woolen cloth?

Michelle：The early stages of this curve look like nothing is happening, as you know crypto is an island and it's very disconnected from other resources, the ingress just for assets is still a clunky flow of information, you know it's hard The data of other Internet on the chain is obtained in the smart contract, so although the existence of this island is necessary, there are very few things that can be done.

Overall, as the island continues to grow in terms of users and funds, more crypto-native applications will be built to serve this universe than elsewhere.

It's more likely that the world of incumbents starts connecting here and starts meeting those needs and then we have to move to phase two because the infrastructure has improved a lot, you know from the dial-up phase to the broadband phase to now 5G , we are right now, those core infrastructure layers are dramatically improved, orders of magnitude faster and cheaper. And we're starting to build more connectivity between on-chain and off-chain applications through the liquidity of assets and information, and I think it's hard to see the future at the stage we're just starting.

Because the core infrastructure has to be addressed first, it's like the foundation of the building, you really have to start at the bottom, and then we get to Internet-scale users, and you can start to get really large applications. So what people often miss is, through that growth curve, you think, wow, this company or product has grown amazingly, but I'm sure it's out now. When we have 4 billion or more crypto users, you may think it's far away, but when you start to see trillion-dollar companies or two-trillion-dollar companies, it's different because they really do in a way Serving the Internet-scale population in a very significant way, so we think we're still in the early stages of Phase 1 and maybe just hoping to get to Phase 2, but it's still really early days.