So, the original post below I wrote a full 10 (!) years ago in the first few months of, in November 2012.  Back then, folks all over Twitter were making fun of Sequoia for investing $20m+ in an iOS app that never launched and failed.

But they missed the point of how the game was played.  The same week, Sequoia also sold Meraki to Cisco and made $240,000,000 on that deal.  You can lose $20,000,000 if you make $240,000,000 the same week.

We see the same today with FTX.  A crazy loss.  But a tiny one, compared to the huge wins in the exact same VC fund.

And so we see it again, 10 years later.  After Sequoia has a string of 10x funds.  Yes, FTX is going to zero.  And yes, it looks like fraud was involved.  It’s not OK.  But, in the end, Sequoia is already up $7.5 Billion in the same fund it lost $150m on in FTX.  Losses like this are part of Going Big.

A look back at sort of the same thing, same top fund, 10 years earlier, from 2012:

I had a draft post I’d written weeks ago entitled something like “Color:  Just an Enormously Large Seed Round Gone Horribly Wrong”, or something like that.  Which I guess it was — $41,000,000 to build an iOS app with no revenue that no one ever used.

But it wasn’t that interesting, that post/story, so I let it rest.  It didn’t all come together for me until the other day.

Then I saw that enterprise WiFi company Meraki was acquired by Cisco for $1.2 billion dollars the other day.  Just a few weeks after Color is wound down.  Now what does an enterprise WiFi company have to do with a consumer iOS app?

Well, only one thing near as I can tell.  They were both funded by Doug Leone (who I don’t know and have never met) at Sequoia Capital.

It looks like Sequoia was the first investor in Meraki, pre-product, pre-anything, just the team. I think it’s fair to assume they owned 20%, possibly more.  So ignoring basis, Leone and Sequoia cleared $240,000,000 on Meraki.

On to Color.  OK, this one didn’t pan out as well.  But let’s do some back-of-the-envelope math.  Yes, they raised $41m pre-launch.  But I doubt they spent it all.  Let’s assume they spent half, and returned the other half to the investors.  And let’s assume Leone and Sequoia put in 70% of the capital.  So 70% x $20m = a $14m loss for Leone and Sequoia on Color.

Now, to a small fund, or a new VC, I’d think a $14m loss would just be awful.  It would be to me.

>> But coming the same quarter as a $240m gain, a $14m loss is a rounding error.  At least as long as you only have one or two of them. 😉

Going Big.  Means Losing Biggish a few times, at least.

Something to keep in mind based on who you take money from.  Make it match your ambitions, your upside goals, and your downside tolerance.

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