Sequoia bets on silence

In the high-stakes world of venture capital, where reputation is paramount, Sequoia Capital recently put a time-honored crisis management strategy to the test: silence. The firm’s calculated gamble, particularly regarding partner Shaun Maguire’s controversial social media posts, appears to have paid off — at least in the short term. While Maguire initially faced widespread criticism, the indignation quickly subsided, with some even suggesting his defiant stance might be strengthening his position, perhaps even leading to “good for deal flow.”

However, this strategy carries inherent risks. Another provocative post, a shift in the political landscape, or escalating consequences could swiftly transform Maguire from an asset into a liability Sequoia can no longer ignore. As one crisis communications professional aptly put it, “Firms like Sequoia are bulletproof until they aren’t.”

The Controversy Unfolds

Sequoia’s hands-off approach came under intense scrutiny earlier this week following Maguire’s comments about New York City mayoral candidate Zohran Mamdani. In a July 4th tweet, Maguire labeled Mamdani an “Islamist” who “comes from a culture that lies about everything.” This inflammatory post, viewed over five million times, ignited a storm, culminating in a petition demanding that Sequoia condemn the remarks, investigate Maguire’s conduct, and issue an apology. Over one thousand signatures have already been collected.

The firm’s reluctance to intervene has led to speculation, largely centered on Maguire’s unique standing within Sequoia. His close ties with Stripe co-founder Patrick Collison, forged during a 2015 Founders Fund event, proved instrumental in securing a $20 million Stripe investment during Maguire’s first week at Google Ventures in 2016. Collison’s personal recommendation also paved Maguire’s way to Sequoia in 2019. Stripe, a long-standing Sequoia portfolio company since 2010, has seen the firm invest over $500 million in its growth.

Beyond Stripe, Maguire also led Sequoia’s investment in Bridge, a stablecoin platform acquired by Stripe for $1.1 billion. Furthermore, he is reportedly a significant link between Sequoia and Elon Musk, a connection supplemented by Sequoia’s global leader, Roelof Botha, who has known Musk for over 25 years, dating back to their time at PayPal. While Botha previously expressed strong criticism of Musk’s management style at X.com/PayPal, these past tensions have reportedly been resolved.

The underlying message is clear: when managing billions in assets and a reputation built on backing industry giants like Google, Stripe, and Nvidia, a “rainmaker” like Maguire is not easily cast aside.

Maguire’s Defiance and Sequoia’s Silence

Maguire’s subsequent actions reinforce his defiant stance. After a 30-minute video apology on X, where he clarified his remarks were aimed at a political ideology rather than a religion, he doubled down with increasingly aggressive posts. He claimed to have “reverse engineered” his critics’ “command structure” and threatened to “embarrass” anyone who escalated against him, adding this was him at “1% throttle.”

Sequoia’s silence is not without precedent. The firm has historically allowed its partners public expression, evident in the diverse political perspectives of figures like Doug Leone and former partner Michael Moritz. However, critics argue there’s a crucial distinction between political diversity and incendiary rhetoric that can alienate business partners and communities.

It’s also important to note that Sequoia does have a line it won’t cross. Michael Goguen, another former rainmaker, was swiftly removed from the firm following a sexual abuse lawsuit. While Goguen’s issues were legal and personal, not ideological, it demonstrates Sequoia’s willingness to act when its reputation is at serious stake.

Several factors likely inform Sequoia’s current strategy. The rapid news cycle often means scandals fade quickly. Moreover, the shifting U.S. political landscape, marked by a perceived increased tolerance for controversial speech, might lead the firm to believe this controversy will be weathered. Beyond politics, Sequoia likely banks on the fact that founders, while preferring a more genteel VC mold, prioritize successful partners. When Sequoia, with its unparalleled track record and deep pockets, comes calling, most founders are likely to welcome them, regardless of Maguire’s personal views.

Despite these considerations, Sequoia’s silence carries tangible risks. The petition against Maguire includes prominent Middle Eastern executives and founders – a diverse, global talent pool vital to Sequoia’s future. By not addressing the controversy, Sequoia risks being seen as tacitly endorsing Maguire’s views, potentially alienating entire regions and communities in an increasingly connected global market.

Lessons from the Past and Future Implications

The venture capital world has historically shown a remarkable capacity to forgive controversial figures, especially those who deliver exceptional deal flow. Examples include Apollo Global Management’s Leon Black, who resigned in 2021 over payments to Jeffrey Epstein, with the firm’s stock barely moving. Similarly, Kleiner Perkins survived Ellen Pao’s high-profile gender discrimination lawsuit in 2015, though it took years and a significant team overhaul to regain its standing. These cases suggest that while controversial partners can be endured, the recovery timeline varies significantly based on how firms manage such crises.

Ultimately, whether Sequoia’s bet on silence pays off will depend on the controversy’s longevity, its actual business cost, and whether Maguire can resist pushing beyond the firm’s tolerance threshold. Though he claims his posts are “excrutiatingly thought out,” the risk remains.

A crisis communications expert, offering advice for Maguire and, by extension, Sequoia, noted that Maguire’s 30-minute apology video was too long for most. The expert suggested, “If there’s a next time… do two videos – one for three minutes” and another, longer one for those deeply interested. Sometimes, “less is more.”