Sequoia’s Alfred Lin on the art and math of spotting outliers

Less than five minutes after we sit down, he and I are talking about examining opposing ideas simultaneously. It’s a frame of which F. Scott Fitzgerald famously wrote in 1936: “The test of a first-rate intelligence is the ability to hold two opposing ideas in the mind at the same time and still retain the ability to function.”

And Lin, who just celebrated his 14th year at Sequoia Capital, thinks there are practical reasons to consider extremes.

“The thing about keeping things in tension, in extreme tension, is that the right answer is almost certainly somewhere in the middle,” Lin said. “Even if it leans one way or the other, whatever you try to do, your answer is probably somewhere in the middle. But if you start in the middle and radiate from there, you think “oh, that’s obvious, it makes sense.” Then limit the number of solutions you look at. If you look at the extreme and work toward the center, you cross almost every possibility. That’s why when people hold things in tension, they tend to come up with more options.”

Lin holds a unique distinction in Silicon Valley. He is one of the most successful investors at one of the most well-known venture capital firms in technology. He was Sequoia’s lead investor in DoorDash, Airbnb, Citadel Securities and Reddit. The last time Lin spoke at length wealth it was 2021 when both DoorDash and Airbnb went public within days of each other. Another idea to keep in tension — Lin also led Sequoia’s investment in FTX, whose collapse sent shockwaves through crypto and tech. (Lin said last year that the firm had been misled.) Still, Lin remains widely regarded as the best of the best, a remarkable distinction in the long-standing venture business.

Seated across from Lin in San Francisco’s Sequoia space above a chocolate factory, he sounds like the mathematician he almost was. Lin TA took undergraduate and graduate statistics courses and noticed that the more advanced the math, the more concerned he was with extremes. Lin may have given up on his Stanford Ph.D. to join LinkExchange (which he sold to Microsoft for $265 million in 1998), but in his own way, he still teaches: Last week, at Arc Sequoia’s pre-seed and seed company-building program, he taught a session on outliers.

What is an outlier? Can you know when you meet one? Lin sees identifying outlier founders as both a mathematical and a human endeavor, broad and deeply individualized.

“The wrong way to think about math is that it’s just numbers or it’s just abstract,” he said. “But when you study math, it’s more about patterns, seeing a perspective that no one else has seen before… And I try to see that in people. We often talk about outliers. In statistical terms, an outlier is four standard deviations from the mean and can be in a positive or negative direction. Both are outliers… But there is also a difference between anomalies and outliers. Is this a real signal versus just noise? If someone’s peak is super competitive in weightlifting, is that a true outlier? You have to differentiate that. I try to find out why someone is different. I think most founders want to talk about how they are similar to all the other founders.”

Part of the key seems to be that one’s abnormal trait, whatever it is, is somehow uniquely suited to the problem one wants to solve. Lin is aware that this is not easy to identify.

“It’s hard to describe what an outlier is,” he said. “But the person has to have a peak, and that peak has to be in the direction that makes sense for the market they want to target.”

Lin seems wary of oversimplifying people as a general rule, and deeply attuned to the lines between past and present. The way I see it, he operates with a mathematical framework, then uses that framework as a starting point to dive into the stories and businesses of the individual founders. (Again, two contrasting ideas at once.) So Lin has filters – and then goes from there.

“In the seed, we look for three things,” he said wealth. “We are looking for an abnormal team, genuine and compelling insights and positive market dynamics.”

There are also general characteristics that startup-ready outliers are likely to have, he says. These range from adaptability to work ethic to the ability to attract followers. Lin believes in “founder-market fit,” the idea that there must be alignment between the founder and the market opportunity they are pursuing. He’s interested in a vision, sure, and wants to see how that vision is connected to reality and implemented, but Lin believes that starting a company is a team sport.

“I don’t think every person can do all three, but when you put together a founding team, they can do all three,” Lin said. “If you look at Airbnb, it looks like Brian Chesky today. But let’s not forget that Brian will tell everyone it was Joe’s idea. It wasn’t his idea, so without Joe this would never have happened. And without Nate, that technology would never have been built.”

Lin is very outgoing but hesitant to be prescriptive. It is one last contradiction to hold in tension. He both wants to help potential founders, but doesn’t want to give them (or me) too much information, lest he encourage imitation. When I asked Lin what his best meeting with a founder was like, he smiled but didn’t give me a straight answer.

“If I tell you and publish it, and then everyone tries to be like that,” Lin said, “my screening process will fall on its face.”

Elsewhere…Fortune’s list of Asia’s Most Powerful Women has just been revealed, and my colleague Nicholas Gordon interviewed Singaporean VC Jenny Lee, an investor in Alibaba, Didi and Xiaomi. Here’s what he had to say about strategy, geopolitics and more.

See you tomorrow,

Allie Garfinkle
Twitter: @agarfinks
E-mail: [email protected]
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Nina Ajemian curated the deals section of today’s newsletter.

VENTURE OFFERS

– Q-CTRLa Sydney-based developer of quantum infrastructure software, has raised $59 million in Series B-2 funding. GP Bullhound led the round and joined him Alpha Edison, Lockheed Martin Ventures, NTT Financeexisting investors Alumni Adventure, Salesforce Ventures, John Ealesand others.

– Green Goala Berlin-based provider of decarbonization solutions for the construction sector, has raised $15 million in seed funding. The fifth wall led the round and joined him Atlantic Labs and Speedinvest.

– Lithiosa Boston-based developer of electrochemical lithium extraction technology, has raised $10 million in seed funding. Adventures with clean energy led the round and joined him TechEnergy Ventures, GS Futures, Capital with low carbon emissionsand MassCEC.

– Building radara Munich-based workflow automation software platform for sales in the construction industry, has raised $7.2 million in funding. Socii Capital led the round and was joined by existing investors.

– Layera Zurich-based developer of full-stack decentralized tools, has raised $6 million in seed funding. 1x led the round and joined him Fabric Ventures, Arrington Capital, Participation capital group, IOBCand angel investors.

– Loot Labsa Seattle-based developer of digital collectibles platforms, has raised $6 million in seed funding. BITKRAFT Ventures led the round and joined him Sfermion, Fabric Venturesand Every realm.

– quartera Stockholm-based qualitative public market research software and data provider for finance and investor relations professionals, has raised $6 million in funding from Altos Ventures.

– Reviewa Paris-based social learning app for GenZ and GenAlpha, has raised $6 million in seed funding. Speedinvest and Moonfire led the round and joined them Motier Ventures, Station F, Illka ​​Paananenand others.

THE PRIVATE CHAPTER

– Butterfly Equity agreed to acquire The Duckhorn Portfolioa luxury wine company based in Saint Helena, California, for about $2 billion.

– GSE worldwidesupported by the credit arm of BC Partnersinterest Marketing with net resultsa sports, food and entertainment marketing company based in Chevy Chase, Md.. Financial terms were not disclosed.

– Oakley Capital acquired the majority stake in Data protection ensureda provider of managed data backup, business continuity, disaster recovery and threat detection services based in Leeds, England. Financial terms were not disclosed.

– Renovus Capital Partners acquired a majority stake The Angeion Groupa provider of collective case management solutions based in Philadelphia. Financial terms were not disclosed.

– VSS Capital Partners acquired the majority stake in Treya Partnersa San Francisco-based management consulting firm providing value creation in procurement, strategic sourcing and spend management consulting services for private equity-backed clients. Financial terms were not disclosed.

OUTPUT

– Capital Blue Owl agreed to acquire IPI partnersa Chicago-based digital infrastructure fund manager from ICONIQ Capital and Iron Point Partners for about $1 billion.

OTHER

– Apollo Global Management agreed to acquire The Barnes Groupa Bristol, Connecticut-based provider of engineered products, differentiated industrial technologies and solutions for $3.6 billion.

IPOS

– Upstream Bioa Waltham, Mass.-based biotech focused on respiratory disorders plans to raise $212.5 million in an offering of 12.5 million shares priced between $15 and $17 on the Nasdaq. The company posted revenue of $2 million for the year ending June 30, 2024. OrbiMed, Upstream AI, Altshuler Shaham Insurance and Pension Fund, Decheng Capital Global Life Sciences Fund, TCG Crossover Fund, HBM Healthcare Investments, Maruho Deutschland, Enavate Sciences, Samsara BioCapital, The Omega Fund, BCLS fundand Venrock Healthcare Capital Partners back the company.

– Cerebelluma Sunnyvale, Calif.-based neurological medical technology company plans to raise $107.2 million in an offering of 6.7 million shares priced between $14 and $16 on the Nasdaq. The company posted revenue of $54 million for the year ending June 30, 2024. The Rise Fund Clearthought, Global value investment portfolio management, Longitude Venture Partners IV, ABG WTT-Ceribell, Red Tree Venture Fundand Optimas Capital Partners fund back the company.

FUNDS + FUNDS OF FUNDS

– Shore Capital Partnersa Chicago-based private equity firm, raised $1.9 billion for its first health benefits fund, second business services fund and first search fund focused on lower middle market companies in the healthcare, food and beverage, business services, industry and real estate. sectors.