Before we get into today’s column, some breaking news: Roelof Botha, who has held the top role at Sequoia Capital for three years, announced he was handing the reins to two partners, Alfred Lin and Pat Grady. Botha, 52, took over Sequoia in 2022 just as tech stocks were plunging and VC firms including Sequoia were mopping up the excesses of their spending during the pandemic-era low-rate period. Before long, he was navigating the firm through another mania—for AI.
It’s not clear why Botha decided to step down now, but he leaves the firm in the hands of two partners who have several wins under their belt, including in AI. Alfred Lin, an early leader at Zappos, had led the firm’s growth-stage deals into Airbnb and its Series A into DoorDash. More recently, he led the firm’s early investment in Physical Intelligence, the robotics AI startup, and its investment into Kalshi, the prediction market recently valued at $5 billion.
Grady, meanwhile, has led the firm’s investments in legal tech firm Harvey and medical AI firm OpenEvidence. And both partners share credit for sourcing the firm’s investment in OpenAI in 2021, the year before ChatGPT’s launch. These days, AI credit seems to be all that matters.
Now, on to the rest of today’s column…
I spent a lot of time over the last week reporting on how artificial intelligence continues to scramble the playbook for venture capitalists, from lower margins to challenges presented when too many AI researchers want to become founders, to the size stakes VC firms can get.
For a start, the AI goldrush has made it even harder for startups to hire because the allure of being a founder is so high, Kleiner Perkins partner Leigh Marie Braswell told me at our annual Women in Tech, Finance and Media Summit in Yountville, Calif., last week.
“Being a founder right now, at least out of my recent memory, is the highest status being a founder has ever been,” said Braswell, who has backed coding startup Windsurf and AI sales tool Nooks. Top engineers and researchers are skipping job offers to start their own companies — and investors are rewarding those who can still recruit amid the frenzy.
“Now, when I’m evaluating founders, not only am I looking if they are in it for the right reasons, but I give them extra points if they’re good at hiring,” she said.
In addition, the high costs of paying for AI models is forcing investors to accept more volatile margins.
“The lack of predictability of how much you spend on AI is really what is driving the lack of clarity on margins,” Index Ventures’ Nina Achadjian. Both Achadjian and Braswell expect models to get cheaper, which would also improve margins.
Bain Capital Ventures’ partner Merritt Hummer, whom I interviewed for TITV last Wednesday, said that late-stage investors like herself are also dealing with the tradeoffs that come with explosive growth.
“An average company today that we see, relative to a few years ago, is growing faster, but has lower gross margins and lower quality of revenue,” she said.
Intense demand from investors and strategic backers like Amazon and Google to invest in hot AI startups is also forcing VC firms that usually demand significant stakes in early stage startups to become more flexible.
That was one of the findings from reporting on Benchmark Capital, the vaunted VC firm that backed startups such as Uber and Ebay early. Though Benchmark usually targets owning 20% of a business, it accepted 1% in Anysphere, which makes the popular coding tool Cursor.
The firm also owns around 10% of Mercor, despite leading its Series A. In deals where it has had to invest later in the business, such as search firm Exa’s Series B, it also had to bend on ownership, settling for a roughly 7% stake in the business.
As we head into the final two months of the year, I’m anticipating AI will continue to sow chaos—and opportunity—for investors.
Reporters Cory Weinberg and Natasha Mascarenhas tell you what’s coming next, who’s winning—and who’s losing—in the high-stakes world of startup investing.
