The Trump administration has begun taking direct equity stakes in American companies, not as temporary crisis measures, as in 2008, but as permanent fixtures of industrial policy.
The moves raise interesting questions, including what happens when the White House appears on a cap table.
At TechCrunch Disrupt in San Francisco last week, Sequoia Capital’s global steward Roelof Botha fielded exactly that query, and his response drew knowing laughter from the packed house: “[Some] of the most dangerous words in the world are: ‘I’m from the government, and I’m here to help.’”
Botha, who describes himself as “sort of libertarian, free market thinker by nature,” said that industrial policy has its place when national interests demand it. “The only reason the U.S. is resorting to this is because we have other nation states with whom we compete who are using industrial policy to further their industries that are strategic and maybe adverse to the U.S. in long term interests.” In other words, China’s playing the game, so the U.S. has to play along.
Still, his discomfort with government as co-investor was unmistakable during his appearance. And that wariness extends beyond Washington. In fact, Botha sees troubling echoes of the pandemic-era funding circus in today’s market, though he stopped short of using the word “bubble” on stage. “I think we’re in a period of incredible acceleration,” he offered more diplomatically, while also warning about valuation inflation.
He told the audience that, on the very morning of his appearance, Sequoia had debriefed about a portfolio company whose valuation soared from $150 million to $6 billion in twelve months during 2021, only to come crashing back down to Earth. “The challenge you have inside the company for the founders and the team, [is] you feel as though you’re on this trajectory, and then you end up being successful, but it’s not quite as good as you hoped at one point.”
It’s tempting to keep raising money to maintain momentum, he continued, but the faster a valuation climbs, the harder it can fall, and nothing demoralizes a team quite like watching a paper fortune evaporate.
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His advice for founders navigating these frothy waters was two-pronged: if you don’t need to raise for at least twelve months, don’t. “You’re probably better off building because your company will be worth so much more 12 months from now,” he said. On the other hand, he added, if you’re six months from needing capital, raise now while the money’s flowing, because markets like the one we’re in can sour quickly.
Being the sort of person who studied Latin in high school (his words), Botha reached for classical mythology to drive the point home. “I did read the story of Daedalus and Icarus in Latin. And that stuck with me, this idea that if you fly too hard, too fast, your wings may melt.”
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