Non-consensus Decisions in the Robotics Sector: Why Sequoia Chose to Double Down on Yushu at Its Most Difficult Time?

Author: Sequoia Capital

One day, an entrepreneur comes to you:

· A 29-year-old young man, without any prestigious school background, and has never worked a proper job;

· After three years of entrepreneurship, he has created a robotic dog, but apart from running and jumping, you don’t know what else it can do;

· He has just been "ghosted" by a venture capital fund, and his funds are about to run out.

Would you invest in him?

This was the "portrait" of Wang Xingxing when he attended Sequoia's seed investment decision meeting in 2019. Of course, with Yushu now listed, it seems that everything at that time has become an essential experience and test.

In reality, investing in Yushu has never been a simple process, just like its success. There was no romantic "love at first sight" or a clear vision of the future; it was not a lucky coincidence either. Instead, it was through "bold assumptions and cautious verification," after numerous internal discussions and debates, that Wang Xingxing received a vote of confidence.

As one of the earliest institutional investors in Yushu, we decided to publicly share the investment opinion letter from our first investment in Yushu in 2019, commonly known as the "one-pager," which recorded our first impressions and initial views on Yushu and Wang Xingxing. Over the past seven years, it has become a thread that marks the beginning of the gears of fate turning.

In July 2019, Sequoia Capital's investment opinion letter for Yushu Technology's Pre-A round financing was only one page, marking Sequoia's first investment in Yushu.

9 Points for the Outlier

In this investment opinion letter, we evaluated Wang Xingxing as a typical outlier, a preacher of quadruped robots in China, giving him a score of 9 out of 10 in both the outlier and vision dimensions.

Looking back now, this evaluation has stood the test of history.

At that investment decision meeting, Wang Xingxing painted a vision for us:

" I hope to create a very large robot, bigger than Ultraman and mountains; to create a very small robot that can enter human blood vessels at the micron level to treat various diseases; I also hope to use robots to create robots. "

These words seemed fanciful at the time, but later we understood the logic behind them: the extreme sizes of robots are backed by continuous innovations in materials, technology, and products, and imagination is not limited to just one type of quadruped; robots creating robots means that both the technology accumulation of robots and the company will have the capability to scale.

However, convincing most people to believe in Wang Xingxing, who was then "overloaded with debuffs," was not an easy task: he had severe specialization, no experience from top universities, almost no work experience, the originally planned lead investor backed out, and the robotics field was a niche market at that time, making it impossible to estimate the market space for quadrupeds.

But for Sequoia Capital, these were not deciding factors. For early-stage projects, we place more emphasis on the degree of "human match" with the entrepreneur.

First, Wang Xingxing began researching and manufacturing robots in high school, and by the time he started his entrepreneurial journey, he had accumulated a wealth of product and technical experience. Although he did not come from the most prestigious school, he had already achieved tangible results in the robotics field. After evaluating the product, we found that it was on par with Boston Dynamics' robotic dog, and even performed better, but at a fraction of the cost.

Second, through direct contact and various background checks, we could feel Wang Xingxing's extreme passion and focus on technology, his confidence in the product, and his many cutting-edge thoughts on the development of robotics. He was eager to research and had a strong learning ability. During his brief internship at DJI, the then CTO was deeply impressed and praised him. Moreover, he has faced many doubts and challenges throughout his journey since his student days, but Wang Xingxing has shown strong resilience, overcoming delays, which is an important plus.

Finally, Wang Xingxing entered the "founder mode" early on, demonstrating strong principles, personally overseeing financing terms to ensure effective governance structures; frequent continuous innovation, with product and technology breakthroughs every six months; a customer-centric approach, believing that "we should only do what customers need"; and gathering a core team, actively selecting employees who resonate with the cultural philosophy, with no one from the core founding team leaving in ten years of entrepreneurship.

Of course, analyzing the reasons for any entrepreneur's success will always have some "survivor bias," as there are too many factors influencing entrepreneurial success. For investors, identifying an outlier among a large number of entrepreneurs with average backgrounds is much more difficult than investing in a "standard answer" entrepreneur with a strong background and narrative consensus. Such decisions often involve many counterintuitive and non-consensus judgments, posing challenges to building trust, and even carry a hint of "gambling" mentality.

Not a No-Brainer Decision

Although the final focus of the investment in Yushu was on founder Wang Xingxing, the company's strengths and weaknesses were very apparent at that time, sparking much discussion and debate within Sequoia. The biggest shortcoming was: how big is the robotics industry really?

Of course, many great companies in history were filled with controversy in their early stages. Looking back today, the debates and discussions from that investment decision meeting were very valuable during the industry's nascent period and ultimately led us to make the right decision.

At that time, there was still no consensus in the robotics industry. Yushu primarily manufactured high-performance robotic dogs, and people generally felt that such products were a niche direction for geeks, not even qualifying as a "track."

Products like robotic dogs differ from robots in vertical fields such as warehousing, delivery, cleaning, and special applications, as they had no clear demand scenarios at that time. We could only speculate that they might be used in areas such as security, short-distance delivery, education and training, and home companionship in the future.

Although market space has always been a highly dynamic process—just like drones were once a very niche geek field but eventually became a massive consumer market, giving rise to companies like DJI—whether robotics would follow the same path was a huge question mark at that time.

From a rational and commercial perspective, Yushu was a very controversial company that could be avoided for investment; however, from an emotional perspective, judging by future technological expectations, Yushu and Wang Xingxing represented many possibilities worth taking a chance on.

Fortunately, Sequoia's decision-making process and investment style in some non-consensus directions differ from those in venture and growth stages:

First, when things are still immature, we proactively place greater importance on our judgment of people;

Second, we believe that the strengths of entrepreneurs are more important in the early stages, and we focus more on how they can maximize their strengths rather than worrying about how to solve their weaknesses in the short term.

Soon, Sequoia completed its first investment in Yushu and led a new round of internal investment again within six months. Subsequently, Sequoia made two consecutive follow-up investments in rounds B and C, becoming the independent private equity fund with the highest shareholding ratio among shareholders.

Always Looking to the Future

In the past two years, the development of robotics and embodied intelligence has entered the fast lane and has become a highly recognized direction in the venture capital industry. On one hand, the technology, product, and application scenarios of robots have made significant progress compared to before, reminiscent of the early days of mobile phones in the 1980s, which, although still brick-like, already had much imaginative space; on the other hand, the emergence of intelligent AI models has shown the market the development prospects of embodied futures, leading to a willingness to invest more funds and confidence in this prospect.

The successful listing of Yushu, from the perspective of corporate growth, is an important milestone and achievement, but from the perspective of embodied intelligence development, it is merely a starting point. The overall development of embodied intelligence is still at a relatively early stage, and how to scale it to households and generalize it across various industries presents many challenges that require more companies like Yushu to explore more "unmanned areas." Any creation that changes the world relies not only on the intelligence of entrepreneurs but also on the consensus of society as a whole.

Congratulations to Yushu!

Where we're going, we don't need roads.