Sequoia changes fund structure to hold public companies and back crypto

Sequoia Capital Global Managing Partner Doug Lyon speaks on stage during day two of TechCrunch Disrupt SF 2018 at the Moscone Center on September 6, 2018 in San Francisco, California.

Steve Jennings | Getty Images

Over the past half century, Sequoia Capital has established itself as the envy of Silicon Valley, from early bets on Cisco, Apple and Google to recent gains like Zoom, Snowflake and Airbnb.

Now the company is changing its entire fund structure and declaring that the current time-based model of investing is “obsolete”.

“Our industry still owes much to the rigorous 10-year funding cycle pioneered in the 1970s,” Roelof Botha, a partner at Sequoia, wrote in a blog post on Tuesday. “As chips shrink and software moves to the cloud, venture capital has continued to operate on the business equivalent of floppy disks.”

Sequoia is ditching the 10-year venture capital fund, where the limited partners, the outside investors who contribute to the fund, expect to get the money back over a decade. The company said it is creating one fund, the Sequoia Fund, which will raise money from LPs and then direct the capital into a series of smaller funds that invest in phases.

Proceeds from this money will go back to the Sequoia Fund. With no time horizon, Sequoia can hold general stock for longer periods, rather than allocating those shares to LPs. Investors who want liquidity can withdraw funds instead of waiting for distributions.

Like Andreessen Horowitz two years ago, Sequoia became a registered investment advisor, which gives her more flexibility to invest outside of project constraints. This could mean pumping money into IPOs, and “also enable us to increase our investments in emerging asset classes such as cryptocurrencies and seed investment programmes.”

The traditional venture model has been dying a slow death over the past decade or so, as investors from all over the world and all walks of life have flocked to the never-ending bull market. Solo venture capital firms raised money and some tied themselves up with online syndicates for initial deals, and at the other end of the spectrum were private equity firms and sovereign wealth funds writing IPO-sized checks.

While project returns have soared across the board in the past two years, Sequoia has managed to stay on top, despite portfolio founders and CEOs warning at the start of the pandemic that “we must prepare for turbulence.”

The Airbnb logo is displayed on the Nasdaq digital bulletin board in Times Square in New York on December 10, 2020.

hit by betancourt | AFP | Getty Images

By the end of 2020, the IPO market was hitting records, and Sequoia was a major benefactor, thanks to the advent of Snowflake, Airbnb, DoorDash and Unity.

Going forward, investors will bet on Sequoia, to put their money to work across a full suite of technology. Sequoia will choose how much is spent on early stage startups, more mature companies, secondary companies, crypto deals, and international deals.

Without substantive funds, Sequoia wouldn’t have to worry about selling stock or distributing corporate stock to fit within the old venture framework. If a company goes public and within two decades is worth more than $1 trillion, Sequoia will likely own a significant portion of its stock.

“This new structure removes all artificial time horizons about how long we can partner with companies,” Botha wrote.

Just imagine if Sequoia had never sold its stake in Google.

Watch: Former Google exec turned venture capital on opportunities at ESG


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