Sequoia’s Alfred Lin on the art and math of spotting outliers

Less than five minutes after sitting down, he and I are talking about examining contradictory ideas simultaneously. It’s a framework F. Scott Fitzgerald famously wrote about in 1936: “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.”

And Lin, who just celebrated his 14th year at Sequoia Capital, thinks there are practical reasons to consider extremes. 

“The thing about holding things in tension, in extreme tension, is that the right answer is almost definitely somewhere in the middle,” said Lin. “Even if it leans one way or another, whatever you’re trying to do, your answer is probably somewhere in the middle. But if you start in the middle and radiate out from there, you think ‘oh, this is obvious, it makes sense.’ Then you limit the number of solutions you look at. If you look at the extreme and work towards the center, you traverse almost every single possibility. That’s why when people hold things in tension they tend to come up with more options.”

Lin holds a unique distinction in Silicon Valley. He’s one of the most successful investors at one of tech’s most storied VC firms. He’s been Sequoia’s lead investor in DoorDash, Airbnb, Citadel Securities, and Reddit. The last time Lin talked extensively to Fortune was in 2021, when both DoorDash and Airbnb went public within just a couple days of each other. Another idea to hold in tension—Lin also led Sequoia’s investment in FTX, the collapse of which sent shockwaves through crypto and tech. (Lin said last year that the firm was misled.) Nevertheless, Lin remains widely regarded as the best of the best, a remarkable distinction in the long-game venture business. 

Sitting across from Lin, in Sequoia’s San Francisco space above a chocolate factory, he sounds like the mathematician he nearly was. Lin TA-ed statistics courses in undergrad and grad school, and he noticed that the more advanced the math got, the more concerned it was with extremes. Lin may have dropped out of his Stanford Ph.D. to join LinkExchange (which sold to Microsoft for $265 million in 1998) but in his way, he still does some teaching: Last week, at Sequoia’s pre-seed and seed company-building program Arc, he taught a session on outliers. 

What’s an outlier? Can you know when you meet one? Lin sees spotting outlier founders as an endeavor both mathematical and human, broad and deeply individualized. 

“The wrong way to think about math is that it’s just numbers or it’s just abstract,” he said. “But when you study math, it’s more about patterns, seeing an insight that nobody else has seen before…And I try to see that in people. We often talk about outliers. In statistics terms, an outlier is four standard deviations away from the mean, and it could be in a positive or negative direction. They’re both outliers…But there’s also a difference between abnormalities and outliers. Is this a real signal versus just noise? If someone’s spike is being super competitive in weightlifting, is that a real outlier? You’ve got to differentiate that. I try to find out why someone’s different. I think most founders want to talk about how they’re similar to all other founders.”

Part of the key seems to be that someone’s outlier trait, whatever that is, is somehow uniquely suited to the problem they want to solve. Lin’s well-aware this isn’t easy to pin down.

“It’s hard to describe what an outlier is,” he said. “But the person has to have a spike, and that spike has to be in the direction that makes sense for the market that they want to go after.”

Lin seems wary of oversimplifying people, as a general rule, and deeply attuned to the through-lines between past and present. The way I see it, he operates with a mathematical framework, then uses that framework as a jumping-off point to dive into individual founders’ stories and businesses. (Again, two contrasting ideas at once.) So, Lin has filters—and then he goes from there. 

“In seed, we’re looking for three things,” he told Fortune. “We’re looking for an outlier team, authentic and compelling insights, and positive market dynamics.”

There are also general features that startup-ready outliers are likely to have, he says. These range from adaptability to work ethic to the ability to attract followers. Lin’s a believer in “founder-market fit,” the idea that there needs to be alignment between the founder and the market opportunity they’re pursuing. He’s interested in a vision, sure, and wants to see how that vision is connected to reality and executed upon—but Lin believes founding a company is a team sport. 

“I don’t think every person can do all three, but when you assemble a founding team, they can do all three,” said Lin. “If you look at Airbnb, today, it looks like Brian Chesky. But let’s not forget that Brian will tell everyone it was Joe’s idea. It was not his idea, so without Joe that would have never happened. And without Nate, that technology would have never been built.”

Lin is very open, but he’s hesitant to be prescriptive. It’s one final contradiction to hold in tension. He both wants to help prospective founders, but doesn’t want to give them (or me) too much information, lest he encourage imitation. When I asked Lin what his best first meeting with a founder was like, he smiled but didn’t give me a direct answer. 

“If I tell you and you publish it, and then everybody tries to be that,” Lin said, “my screening process will fall flat on its face.”

Elsewhere…The Fortune Most Powerful Women Asia list was just unveiled, and my colleague Nicholas Gordon interviewed Singaporean VC Jenny Lee, an investor in Alibaba, Didi, and Xiaomi. Here’s what she had to say about strategy, geopolitics, and more.

See you tomorrow,

Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Nina Ajemian curated the deals section of today’s newsletter.

VENTURE DEALS

– Q-CTRL, a Sydney-based quantum infrastructure software developer, raised $59 million in Series B-2 funding. GP Bullhound led the round and was joined by Alpha Edison, Lockheed Martin Ventures, NTT Finance, existing investors Alumni Ventures, Salesforce Ventures, John Eales, and others.

– Purpose Green, a Berlin-based decarbonization solutions provider for the building sector, raised $15 million in seed funding. Fifth Wall led the round and was joined by Atlantic Labs and Speedinvest.

– Lithios, a Boston-based electrochemical lithium extraction technology developer, raised $10 million in seed funding. Clean Energy Ventures led the round and was joined by TechEnergy Ventures, GS Futures, Lowercarbon Capital, and MassCEC. 

– Building Radar, a Munich-based workflow automation software platform for construction industry sales, raised $7.2 million in funding. Socii Capital led the round and was joined by existing investors.

– Layer, a Zurich-based full-stack decentralized tools developer, raised $6 million in seed funding. 1kx led the round and was joined by Fabric Ventures, Arrington Capital, Stake Capital Group, IOBC, and angel investors.

– Loot Labs, a Seattle-based digital collectibles platform developer, raised $6 million in seed funding. BITKRAFT Ventures led the round and was joined by Sfermion, Fabric Ventures, and Everyrealm.

– Quartr, a Stockholm-based qualitative public market research software and data provider for finance and investor relations professionals, raised $6 million in funding from Altos Ventures.

– Revyze, a Paris-based social learning app for GenZ and GenAlpha, raised $6 million in seed funding. Speedinvest and Moonfire led the round and were joined by Motier Ventures, Station F, Illka Paananen, and others.

PRIVATE EQUITY

– Butterfly Equity agreed to acquire The Duckhorn Portfolio, a Saint Helena, Calif.-based luxury wine company for approximately $2 billion.

– GSE Worldwide, backed by the credit arm of BC Partners, acquired Net Results Marketing, a Chevy Chase, Md.-based sports, culinary, and entertainment marketing company. Financial terms were not disclosed.

– Oakley Capital acquired a majority stake in Assured Data Protection, a Leeds, England-based data backup, business continuity, disaster recovery, and threat detection managed service provider. Financial terms were not disclosed.

– Renovus Capital Partners acquired a majority stake in Angeion Group, a Philadelphia-based class action case management solutions provider. Financial terms were not disclosed.

– VSS Capital Partners acquired a majority stake in Treya Partners, a San Francisco-based procurement value creation, strategic sourcing, and spend management advisory services management consulting firm for private equity-backed clients. Financial terms were not disclosed.

EXITS

– Blue Owl Capital agreed to acquire IPI Partners, a Chicago-based digital infrastructure fund manager, from ICONIQ Capital and Iron Point Partners for approximately $1 billion.

OTHER

– Apollo Global Management agreed to acquire Barnes Group, a Bristol, Conn.-based engineered products, differentiated industrial technologies, and solutions provider, for $3.6 billion.

IPOS

– Upstream Bio, a Waltham, Mass.-based respiratory disorder-focused biotech company, plans to raise $212.5 million in an offering of 12.5 million shares priced between $15 and $17 on the Nasdaq. The company posted $2 million in revenue for the year ending June 30, 2024. OrbiMed, AI Upstream, Altshuler Shaham Provident Fund and Pension, Decheng Capital Global Life Sciences Fund, TCG Crossover Fund, HBM Healthcare Investments, Maruho Deutschland, Enavate Sciences, Samsara BioCapital, Omega Fund, BCLS Fund, and Venrock Healthcare Capital Partners back the company.

– Ceribell, a Sunnyvale, Calif.-based medical technology for neurological conditions company, plans to raise $107.2 million in an offering of 6.7 million shares priced between $14 to $16 on the Nasdaq. The company posted $54 million in revenue for the year ending June 30, 2024. The Rise Fund Clearthought, The Global Value Investment Portfolio Management, Longitude Venture Partners IV, ABG WTT-Ceribell, Red Tree Venture Fund, and Optimas Capital Partners Fund back the company.

FUNDS + FUNDS OF FUNDS

– Shore Capital Partners, a Chicago-based private equity firm, raised $1.9 billion for its first healthcare advantage fund, second business services fund, and first search fund focused on lower middle market companies in the healthcare, food and beverage, business services, industrial, and real estate sectors.