Sequoia Bets on Silence: What It Means for Startups

A Calculated Risk in Crisis Management

A common strategy in managing public relations crises involves remaining silent and allowing public outrage to subside. For Sequoia Capital, this approach appeared to be effective this week. Initial criticism directed at partner Shaun Maguire following a contentious social media post diminished rapidly. Some observers now suggest that Maguire’s resolute stance could potentially bolster his standing within the firm.

However, Sequoia’s deliberate strategy isn’t without inherent risks. Further provocative statements from Maguire, unfavorable political developments, or escalating repercussions could swiftly transform a valuable partner into a liability the firm can no longer sustain.

The Core of the Matter

Sequoia’s approach was challenged earlier this week when the firm became the focus of attention regarding Maguire’s remarks concerning New York City mayoral candidate Zohran Mamdani. In a tweet posted on July 4th, Maguire labeled Mamdani an “Islamist” and asserted he “comes from a culture that lies about everything.” This post has garnered over five million views. A petition calling for Sequoia to condemn the comments, investigate Maguire’s behavior, and issue an apology has amassed over one thousand signatures.

Many have questioned why Sequoia hasn’t taken action, particularly given Maguire’s significant role within the firm. This position is partly attributed to his close relationship with Stripe co-founder Patrick Collison. At a 2015 Founders Fund event, Maguire, then an entrepreneur backed by Founders Fund, defended Collison during a disagreement with Anduril’s Palmer Luckey concerning quantum computing, earning Collison’s respect.

Valuable Connections

This connection proved beneficial when Maguire joined Google Ventures in 2016, where he facilitated a $20 million investment in Stripe during his first week. Upon leaving Google Ventures in 2019, Collison personally recommended Maguire to Sequoia’s partners. Stripe has been a portfolio company of Sequoia since 2010, with the firm investing over $500 million over fifteen years.

Maguire also spearheaded Sequoia’s investment in Bridge, a stablecoin platform acquired by Stripe for $1.1 billion. He is also reportedly a key contact for Elon Musk within Sequoia, although he is not the sole link. Both Musk and Sequoia’s global leader, Roelof Botha, are South African natives who have known each other for over 25 years, dating back to their time at PayPal, where Botha was recruited by Musk.

Past Disagreements

Despite this long-standing relationship, Musk and Botha haven’t always been in agreement. Botha was critical of Musk’s leadership when Musk served as CEO of the combined X.com/PayPal company, where Botha was CFO. Botha once remarked to journalist Ebbe Dommisse that Musk’s continued leadership for six more months could have jeopardized the company’s survival.

However, those tensions have since been resolved. The central point remains that when managing tens of billions of dollars in assets and a reputation built on backing successful companies like Google, Stripe, and Nvidia, it’s difficult to dismiss a high-performing individual.

Doubling Down

Maguire’s actions indicate he has no intention of retreating. Following the release of a 30-minute video on X where he apologized for causing offense – clarifying he was addressing a political ideology, not a religion – he has continued to post increasingly assertive messages. He claimed to have “reverse engineered” the “command structure” of his critics and threatened to “embarrass” anyone who escalates the situation. He stated he was operating at “1% throttle” and cautioned against antagonizing “children of the internet.”

A History of Tolerance

Sequoia has historically allowed its partners to express their views publicly, with figures like Doug Leone and Michael Moritz representing diverse political perspectives. However, there’s a significant distinction between political diversity and inflammatory language. To some, Maguire’s comments transcend partisan politics and potentially alienate business partners and prospective investments.

It’s also important to remember that Sequoia has established boundaries. Michael Goguen, a previously influential partner, was swiftly removed from the firm when allegations of sexual abuse surfaced against him. While the situations differ – Goguen’s issues were legal and personal, not ideological – Sequoia has demonstrated it won’t unconditionally defend its personnel if its reputation is compromised.

Shifting Political Landscape

Several factors likely influence Sequoia’s current strategy, including the rapid news cycle and the tendency for public attention to shift quickly. The firm is also operating within a changing political climate in the U.S., where controversial speech is increasingly tolerated following Donald Trump’s election and the rollback of DEI initiatives.

Furthermore, Sequoia likely anticipates that founders prioritize successful partners, even if they don’t align with traditional VC values. Startups receiving interest from multiple top-tier firms may not agree with Maguire’s views, but they are likely to welcome Sequoia’s track record and substantial financial resources.

Potential Contingency Plans

It’s possible Sequoia is developing a contingency plan. (Sequoia declined to comment on Maguire’s posts when contacted by TechCrunch.)

However, Sequoia’s silence carries risks. The petition against Maguire includes signatures from prominent Middle Eastern executives and founders, representing the diverse global talent pool crucial to Sequoia’s future. By remaining silent, Sequoia risks appearing to endorse Maguire’s views.

A Gamble with Reputation

While the venture capital industry has historically been forgiving of controversial figures with strong deal-making abilities, Sequoia is taking a risk with its reputation in an increasingly interconnected global market. Alienating entire regions and communities could have significant business consequences.

The outcome will depend on the longevity of the controversy, its impact on Sequoia’s business, and whether Maguire can refrain from exceeding Sequoia’s tolerance limits. (Maguire has stated he doesn’t post anything without “excruciating thought.”)

Historical Precedent

Established financial firms with strong performance records often weather scandals, even serious ones. When Apollo Global Management’s Leon Black resigned in 2021 due to payments made to Jeffrey Epstein, the firm’s stock remained stable, and shareholders appeared largely unaffected. Apollo continued its aggressive deal-making under new leadership.

Similarly, Kleiner Perkins survived Ellen Pao’s high-profile gender discrimination lawsuit in 2015. However, it took years and a significant team overhaul for the firm to regain its position in Silicon Valley.

Advice for the Future

A crisis communications professional, speaking anonymously, suggested Maguire’s apology addressed ambiguities in his initial post. However, they noted the 30-minute length of the video, stating, “You have to really be interested to watch this.”

The professional recommended that in future situations, Maguire should “do two videos — one for three minutes” and a longer version for those seeking more detail. Sometimes, they added, “less is more.”