Sequoia Capital's gender problem
It’s been a week since the Mike Goguen scandal rocked Silicon Valley. And for much of that time, I’ve debated writing anything about it.
As regular readers know, Pando has a policy not to cover allegations of personal (as opposed to professional) impropriety unless and until those allegations go to court or result in arrest. We did not cover the allegations made against Michael Arrington, even though he was someone we had previously ejected from our own board. We did not cover Ellen Pao’s allegations against Kleiner Perkins until the case went to trial.
The same rule applies to the Mike Goguen case.
Still what is appropriate to examine is Sequoia’s surprisingly swift public response to the allegations, especially in the context of the firm’s reputation when it comes to the treatment of women.
Right after the complaint was filed, the official Sequoia Twitter account posted this:
We understand the allegations about Michael Goguen are unproven and unrelated to Sequoia. Still, we decided his departure was appropriate.
This was before Goguen had even filed his counterclaim or made his side of the story public.
It also directly contradicted Goguen’s suggestion that the departure was his choice:
My departure allows me to focus with full force on clearing by name and vigorously pursuing justice - starting on Monday morning with the filing of my detailed and evidence filled cross complaint alleging extortion.
Make no mistake: Sequoia’s swift action and refusal to allow Goguen to spin the departure as “taking time with my family” hurt him in the court of public opinion. It also gave mainstream news organizations like CNBC an excuse to report on a sex scandal.
Sequoia is not commenting further, but people familiar with the matter confirmed to me that Goguen was absolutely fired. The primary reason: An irreparable breach in the partnership’s trust, given he had signed $40 million settlement agreement with his alleged victim. An agreement that no one at the firm knew about until a week ago.
But the firing had another impact: It allowed Sequoia to be seen to take one of the strongest stances any major organization has taken when a scandal alleging mistreatment of women has occurred in the tech industry.
There are three reasons Sequoia’s actions are so interesting: The first is that Sequoia is the most consistently dominant and powerful firm in Silicon Valley. In that sense, it’s a standard bearer for the industry. The second is that Sequoia hasn’t had any female investment partners in the US, and has historically been considered by many women in the Valley to be particularly sexist. (More on that shortly, because other women disagree.) The third is how these actions contrast to other scandals we’ve seen in recent Silicon Valley history of this nature and what that may say about how the Valley is evolving when it comes to the treatment of women. Or at least, the optics of it.
Let’s talk first about Sequoia’s dominant position in the industry. The firm played a huge role in the founding of this industry investing in iconic, industry defining companies like Atari, Apple, Cisco, Oracle, and Google. Sequoia’s founder Don Valentine is considered one of the great forefathers of venture capital, interviewed in every major documentary about Apple and the early days of the Valley. He came out of Fairchild, which is as close as you can get here to springing from the forehead of Zeus.
After Valentine’s heyday, the major rainmaker of the firm was Doug Leone, a brass-knuckled Italian immigrant with a stellar investing track record.
In the Internet era, the mantle of Sequoia’s chief rainmaker then fell to an unlikely successor: Former journalist Mike Moritz. He became one of the shrewdest and feared investors of the dot com era. Everyone likes to talk about “top quartile” or even “top five” firms in the Valley, but by the peak of the dot com era there was a clear top two: Kleiner and Sequoia.
But fortunes can change rapidly in tech.
Succession planning kills great venture firms, particularly those where one personality has dominated its deal making. Witness John Doerr’s struggles to replace himself and former partner Vinod Khosla with an equivalent new crop at Kleiner Perkins.
By contrast, Sequoia has seemingly pulled off the near impossible, yet again, transitioning to a successful new generation. Roelof Botha, of the PayPal mafia, had his first hit with YouTube, followed by Eventbrite, Evernote, Instagram, Square, Tumblr, MongoDB, and Jawbone.
But even with his track record, Botha isn’t considered an overshadowing force at the firm. The current crop of partners-- which include Alfred Lin, Brian Schreier, Jim Goetz, Omar Hamoui, Aaref Hilaly, and others you may not have heard of-- mostly have their own hits. Lin has Airbnb, Doordash, Houzz, and Instacart. Goetz has Github, Whatsapp, and Palo Alto Networks. Schreier has Dropbox, Thumbtack, Trulia, and Qualtrics. This week in a new CB Insights/New York Times ranking, Goetz-- a guy whose name you probably don’t even known how to pronounce-- was listed as the fifth most dominant VC investing right now.
And most of these partners eschew a lot of publicity, rarely blog, aren’t big personalities on Twitter, and few even have name recognition of past Sequoia rainmakers. For possibly the only time in its history, Sequoia is as dominant as it’s ever been, and yet the firm’s brand outstrips any single partner. It’s arguably a similar case at Accel, as Jim Breyer has stepped back and an assembly of more low-key partners have lead the firm’s hottest deals. The same can’t be said for other top firms like Greylock, Kleiner, or certainly Andreessen Horowitz, where David Sze and Reid Hoffman, John Doerr, and Marc Andreessen and Ben Horowitz loom larger than their firms, respectively.
Say what you want about the historically sharp-elbowed Sequoia. No one has had this solid of a succession plan since its creation in 1972.
There’s another way the newer crop of partners have distinguished themselves from the Sequoia of the past: They are largely considered nice. They have worked to change Sequoia’s image, even as they could have taken the Valley’s standard “Steve Jobs” argument of “Who cares if we’re jerks as long as it’s working?”
The Sequoia of late has been every bit as dominant-- Uber and Snapchat are two of the only mega companies of the current unicorn crop they’ve missed-- but somehow it’s projected a nicer, friendlier Sequoia at the same time.
MODELS SERVING COFFEE
There’s one major area, however where Sequoia does not have a great track record: Women.
According to more than a dozen interviews I’ve conducted with prominent women in the Valley who have pitched, co-invested with, or otherwise done business with Sequoia, the firm’s most iconic rainmakers have been the biggest reason why.
Before those interviews, I didn’t particularly consider Sequoia and more or less sexist than many top venture firms. And I’m no defender of Sequoia. Mike Moritz has twice tried to get me fired from jobs because of my reporting. (Didn’t work either time, by the way.)
Then, after the Mike Goguen lawsuit was filed, several prominent, senior women in the Valley community reached out to me, unsolicited. They were angry. Something about a lawsuit that may hinge on whether or not a rich man in power took advantage of a woman who wanted a better life struck a nerve. Particularly because that man was from Sequoia. “So much of what’s gone on has just been considered acceptable,” one vented to me.
I did not have these types of conversations during the early days of the Ellen Pao trial. In fact, many women I spoke with during that trial expressed frustration that it was a hugely important stance, but a case with an “imperfect” plaintiff and an “imperfect” defendant.
The most salacious parts of the Pao trial didn’t come close to the level of allegations being made in the Goguen lawsuit. The discrimination alleged against Kleiner was the same litany of micro-indignities that many women face every day. While Kleiner painted Pao as no great rainmaker, let’s be clear: The subsequent shakeup at Kleiner shows that a lot of its male partners weren’t either. Still, those men were promoted or hired in at higher levels.
That said, at least Kleiner had at least hired women to invest. Many women in the industry I spoke with at the time felt like Doerr was one of the only major male VCs who’d cared about diversity and sought out female hires, meantime other major firms like Benchmark and Sequoia weren’t getting tarred with this kind of thing because there were no women at the firm to speak out. Horrifyingly, some women I spoke with even worried this would convince partnerships not to hire more women lest they hire “an Ellen Pao.”
That latter concern doesn’t seem to have played out. The trial has only put more pressure on firms to hire women. Greylock recently made a major hire in Sarah Tavel, FirstRound hired Haley Barna, and many other firms have tasked headhunters specifically to find them a female partner. The pressure at least to look inclusive is mounting, even if some of the same age-old sexism and unconscious bias is still rampant.
You can bet Sequoia wishes it had a female partner. You can bet they are looking. Especially after Moritz-- a man who was considered many things in the market but not sexist-- shoved his foot in his mouth last December. In a widely criticized Bloomberg interview, Mortiz said that the reason Sequoia hadn’t hired women was “the pipeline.”
That the firm simply wasn’t going to “lower its standards” just to hire a woman. Of course the problem with that argument (one of many) is that Moritz was a journalist before becoming a VC. He hadn’t been a founder or a CEO or a coder. There’s certainly no pipeline problem when it comes to finding female journalists. Plenty of professional women share his background. It was another infuriating example of men in the venture industry holding women to a higher standard than they hold men or they were held.
Alfred Lin didn’t mince words when I asked him days later at PandoMonthly if these remarks reflected Sequoia’s beliefs, saying “Yes we have a gender problem.” He continued: “There are plenty of qualified women and we need to do a better job at Sequoia to talk to them, recruit them, and hire them into Sequoia Capital.” The message was clear: This is our fault, not the world’s and certainly not women’s.
And according to conversations I’ve had over the last week, Mortiz’s views are comparatively enlightened compared to those of previous Sequoia rainmakers Don Valentine and Doug Leone. In hours of conversations, two stories stood out.
The first was when Valentine was once asked about why the firm had never hired a female investment professional. One woman I interviewed paraphrased his response thus: "We don't have any women at Sequoia because we don't think that a CEO [presumably a man] wouldn’t listen to a woman on his board." A second senior woman confirmed she’d heard the anecdote too.
Valentine founded the firm 40 years ago when things were “different.” He came from the Fairchild Semiconductor mafia, a group known more for chasing secretaries around their desks than refusing to engage with or hire women, according to author Michael Malone who has chronicled this era of the Valley extensively. “They were all at the wagon wheel in the early 60s,” he said in an onstage interview I did with him last year. “They were these rich, young men with their secretaries and fast cars and booze hanging out every night at the Wagon Wheel. . . It was a very different kind of culture and mode of behavior...These guys were MadMen types.”
That doesn’t excuse Valentine’s alleged attitude towards women. If anything it just makes the reports more plausible. And while he’s still listed on Sequoia’s Web site, he hasn’t been an active investor for decades.
More troubling were several stories I’ve heard in the last week about Doug Leone. One successful founder and female investor was approached by a mutual friend about whether she might appreciate her name being suggested for a job opening at Sequoia. It was for an investment role, but not necessarily a partner. The firm had asked this friend for suggestions. Before giving her response, the founder told the mutual friend he should ask Leone whether he’d ever consider hiring a woman. Leone’s alleged response: “The only women we will ever have at Sequoia answer our phones.”
This wasn’t in the early days of Sequoia. This was in 2004. The source told me she was glad she’d asked the question, because it was the only time in her career she was certain she would have been denied opportunity principally because of her gender.
Other stories I heard about Leone were more disturbing. One very senior woman in the industry told me this:
I remember feeling incredibly uncomfortable for the entire thirty minutes I was in there. Feeling like he just had x rays in his eyes. I couldn’t wait to get out of there. I was pitching an idea he was interested in. He wanted to follow up. And what I remember vividly was walking out saying, “There is no way in hell, I don’t care what he offers.” He was very careful about what he said. It was the way he was looking at me. I felt like I was being undressed. And I don’t put up with that very well.
She said she has never felt that way in any other VC pitch, before or after that one. Several women I spoke with detailed an almost identical experience of pitching Leone. The old “my eyes are up here, buddy” experience.
I heard another odd anecdote from another woman who said she didn’t experience any direct sexism as a member of Sequoia’s portfolio. But she noted the strangest thing about the firm were the phalanxes of gorgeous, tall assistants. She and her co-founders used to joke about it, it stood out to them as different from other Valley firms. They were told that most of them were ex-models.
Now, of course, there’s no reason former models can’t make great venture capitalists, or great executive assistants. But when I asked Sequoia to confirm if they purposely hired former models as assistants they did not respond. My understanding is that no such policy currently exists. Ironically, when I wrote this story earlier this week about the “other Sarah Lacy” who’d worked at Sequoia as Goguen’s assistant, I noticed on her LinkedIn page that she was indeed a former model.
I recounted these stories – specifically the ones about Leone and Valentine -- to Sequoia, and the firm chose not to comment. Someone who has worked with Valentine pointed out that he was instrumental in recruiting Carol Bartz to the board of Cisco and NetApp. What is certain: While Sequoia has had a female CFO since 1992, and has several female partners overseas, the US office has never had a female investing professional in its 40-plus-year history. Sequoia could hire anyone it wants and many stellar women have come through the Valley in those decades. If those comments don’t reflect the views of Leone and Valentine, you have to wonder why no female investing hire has ever been made.
If this was the environment Mortiz was hired into, it’s no wonder he thought his recent words on gender were appropriate, that hiring a woman would risk “[lowering Sequoia’s] standards.”
In fairness, I also spoke to several women who have taken money from Leone and have not had negative experiences. But I should disclose that I spoke to many of them at Sequoia’s suggestion.
Amy Pressman, president and co-founder of Medallia, first raised funding after ten years of bootstrapping her company. She told me she was understandably nervous giving up so much control for the first time. She called the CEO of every company Leone had been on the board of and heard nothing but positive reviews, even from one CEO he’d ousted. “My experience with him has been stellar,” she said. “I have never felt any issue being a woman whatsoever.”
Said Daphne Carmeli who had Leone on the board of her company Metreo Software from 2000 to 2007, “My experience was very positive. They made me a better CEO and helped me build a better business.” She too said she’d never felt uncomfortable around Leone.
A third founder working with Leone today didn’t want to be named, but she said this of Leone’s style: “The guy is tough. He’s Italian and came here at 11 without speaking any English. He’s tough but he’s always professional. He’s tough in the way you want a board member to be.”
Maria Cirino of 406 Ventures also had a positive experience as a Sequoia company and later said when she told Leone she was starting her own venture firm he said, “Good, because we need more women in the industry.” She says not every VC she talked to at the time reacted that way. “There are bad guys, and I can send you a list,” she said. “But Doug isn’t one of them.”
And yet, while each of these women were very clear they’d never experienced a hint of sexism in their dealings with the firm, none doubted that the other women I spoke with felt what they said they felt. One noted that she’d only known Leone for a few years and couldn’t vouch for what he was like, say, ten years ago. Another said that even the most supportive men frequently inadvertently do sexist things and need to be called out for them. And a third still said this: “I’d heard the rumors…” before explaining it wasn’t at all her experience. Several of Leone’s defenders have said his “direct” approach can be offensive to men and women.
And that’s the point: Whether or not these accounts represent a majority of women who have interacted with Sequoia matters less than the fact that it’s what many senior women in the Valley say to other women. Many I spoke with said they’ve dissuaded other women from pitching Sequoia because of their experience. “I’m working with a startup now [with female founders] and a couple of people have already said to them, ‘Don’t even put them on your list,’” said one woman.
Indeed, in a recent interview, Mike Maples of Floodgate-- a fund with more women than men—said that a significantly higher percentage of their pitches are from female founders, compared to what he hears from partners at other venture firms. Other VCs tell him “that can’t be possible!” Maples said. The most likely explanation is that more women pitch the firm because it has senior female partners. It “reads” female friendly.
Many VCs who say they want to fund more women, argue they simply don’t see the deals. They may be telling the truth. And it may be because the “scouting report” on that VC is negative because of past actions. Many have complained about the old boys network in the venture world that excludes women from certain networking events. But women have their own networks. And they talk to one another about their experiences.
Data has backed up the logic that a firm that employs a female investing partner will be more female friendly. The Diana Project showed that firms with a female partner were twice as likely to fund female entrepreneurs as those that did not.
Sequoia has learned the hard way that despite its stellar track record, bad word of mouth can cost it deals. A single botched relationship between Moritz and Sean Parker cost Sequoia Facebook… and who knows how many other startups of that era. That was a meaningful miss in a business dominated by homeruns. Sequoia boasts on its Web site that it’s collectively funded companies that are now worth some $1.4 trillion over its entire history. Facebook would have raised that to $1.7 trillion
That’s why despite its dominance, the younger generation of partners have worked hard to remain every bit as rigorous in their due diligence and expectations, but more respectful of the entrepreneur. It helps that, unlike previous Sequoia rainmakers, most of the new partners have actually started or run companies.
And that gets at a crucial point: Out of more than a dozen conversations, not a single woman told me a negative story about sexism that involved the newer crop of Sequoia partners. In fact, none of the negative stories I heard-- even those involving Leone-- had occurred in the past five years.
Meanwhile, over that time, Sequoia’s track record funding women has improved dramatically. According to publicly available information, ten years ago it had two female founded portfolio companies. Today it has 19. Sequoia has backed three of the 11 unicorns that are founded or co-founded by women. By contrast, Benchmark has backed one of those unicorns; Andreessen Horowitz, Kleiner Perkins and Greylock have backed none.
Those close to the firm have argued that the partners have worked hard to change Sequoia’s image on multiple fronts, and that it’s unfair to view Goguen’s messy personal scandal as any indictment on how the firm views women professionally. After all, Goguen hasn’t had a major hit in nearly a decade, and wasn’t even on Sequoia’s venture team at the time of his departure, he was on the growth team.
It’s a fair point. But Sequoia also has to acknowledge its past, just as it did with the curse of Sean Parker. And it needs to hire a female investing partner to prove it doesn’t support Moritz’s words.
And that brings me to the third point: How different Sequoia’s swift action to distance itself from Goguen is from similar scandals. It was just three years ago that Michael Arrington faced very public allegations made by a former girlfriend. Like Goguen, he countersued and, in settlement, the worst of the allegations were retracted.
After the claims were made, Arrington wasn’t fired or suspended from his role at CrunchFund. That might be understandable given it was largely his firm but the real surprise to many was that he hosted TechCrunch’s Disrupt conference in the immediate aftermath of the allegations, with major VCs and entrepreneurs sharing a stage with him without hesitation.
Then there was the scandal around RadiumOne’s CEO Gurbaksh Chahal-- perhaps the most damning of them all. In a stunning investigation, the Journal detailed just how much RadiumOne’s lawyers and board prioritised an upcoming IPO over doing the right thing.
And then came the Ellen Pao case. One in which Kleiner was so convinced that it didn’t have a sexist culture that it allowed itself to get dragged through a trial in which it wound up winning but looking like a dysfunctional partnership in the process.
Several women I spoke with in the last week admitted there’d been less of a “bro wall of solidarity” in aftermath of the Goguen allegations. “I think it’s because it’s post-Ellen Pao,” said one. “That case was unfortunate on so many levels, but I think it did raise the visibility of how women are treated and what these men are like.”
You can argue whether firing any of these men, or supporting them until a court determines the truth, is the “right” outcome. Again, that’s not something we don’t tend to get into here. But the allegations against Goguen had nothing to do with his job, and his counter-complaint admits only that he had a long extramarital affair. He intends-- he says -- to vigorously fight the allegations. A few years ago, you could imagine much more of the bro-wall of support rising up around him, giving him-- not the alleged victim-- the benefit of the doubt.
That Sequoia acted so swiftly says one of four things: One, that it wants to send a strong message to women in the market about zero tolerance of any kind on these issues. Two, that there’s far worse that’s gone on at Sequoia that we don’t know about, and so the firm wanted to distance itself from the story as quickly as possible. Three, that it really was just angry that a partner signed a $40 million settlement agreement in total stealth, that could have potentially had ramifications for the firm. Or, four, that in just a few years the climate in Silicon Valley has gone from one in which men in these cases get the benefit of the doubt to one that errs on the side of zero tolerance.
“Fairness” is in the eye of the beholder in these matters. But if the real legacy of the Ellen Pao trial is that people are quicker to believe that extreme sexism really does exist in the tech industry, meaning that venture firms will avoid being painted with that brush at all costs, that’s ultimately a win for women.
One final note: My wrestling over writing this story-- particularly relying on many anonymous sources-- was ultimately about weighing two contrasting beliefs as a female founder who has been in many pitch meetings myself.
The first is that I wanted to honor the experiences of women who felt slighted or objectified by the Valley’s most powerful firm… a firm many are too afraid to challenge publicly and openly. If things are going to change, these stories need to be heard. The firm in question needs to hear them.
But at war with that is a concern that up and coming female founders might take these stories as a sign that they shouldn’t bother pitching the Valley’s most powerful and successful firm. Indeed, I know several women that have been advised precisely that. As I wrote last week, women shouldn’t assume the experience of other women in the industry will be theirs. It’s hard enough for any entrepreneur to make it, women shouldn’t limit their own potential before sexist forces in the industry even get a chance.
Things are changing in the Valley. We’ll never know whether true hearts and motivations of the venture establishment have changed or whether it’s just the fear of negative optics. Ten years ago everyone was giving the pipeline excuse for not hiring women. It’s only in recent years that it’s become an insult to do so. Every firm wants to back smart women right now to prove they aren’t part of the problem. If you were to ask me, I’d say put your gender aside and pitch anyone who you think can help your business.
The likely worst case scenario for women pitching the firm? Much of the same treatment you’ve probably already gotten used to in your career. That said, all the women I spoke to who had negative experiences with Sequoia still went on to experience enormous success without them.