Sequoia Capital is splitting up its business into three fully independent VC firms. The U.S. and Europe-focused entity will retain the Sequoia Capital brand. The Chinese division, Sequoia Capital China, will be rebranded to HongShan, the English translation of Sequoia — named after California's famous trees. Meanwhile, Sequoia India and Southeast Asia will be rebranded to Peak XV Partners, a reference to Mount Everest. The split will be completed before March 2024.
Sequoia's split comes as the firm struggles with the heavy markdowns on its investments and a rout in technology stocks that have wiped off returns on its publicly held stocks. Sequoia has faced flak recently over its failed bets, including the bankrupt crypto exchange FTX; and its singular fund structure, which allowed investors to hold on to equity for longer. The U.S. fund moved to the singular fund structure, dubbed the Sequoia Capital Fund, in February 2022. Shortly after, the slump in share prices of portfolio startups wiped off gains, with Sequoia potentially losing out on $7B in returns after holding onto stocks of Unity and DoorDash by mid-2022. Earlier this year in March, Sequoia allowed limited partners to withdraw capital from its evergreen fund. The three investment heads, Roelof Botha, Neil Shen, and Shailendra Singh, dismissed rumors that the move was due to the rising tensions between the U.S. and China. Instead, Sequoia cited the conflict of interests, diverging investment thesis, and increased complexity in maintaining centralized regulatory compliance as the key reasons behind the move. Earlier last month, Sequoia roped in national security advisor Beacon Global Strategies to assess the impact of impending U.S. government restrictions on its investments in China. That suggests that Sequoia is downplaying the role of rising U.S.-China tensions in the split when it could be a core factor. With President Joe Biden on the verge of signing an executive order to restrict U.S. investments into critical sectors in China, several other VC firms will likely follow in Sequoia's footsteps and split their Chinese VC divisions into independent units to limit the damage from the restrictions. Sequoia's three regional units were largely independent, with each division having its individual deaflow and portfolio decision-making. The three units shared only back office functions, including compliance, finance, investor relations, basic infrastructure, and an online portal. While there were few overlaps in limited partners in the funds, the three regions largely had their own distinct investor base. However, the units had a profit-sharing agreement, which will now be terminated by Dec. 31. With the split, the independent units will be free to make investment choices they otherwise had to previously back out of due to conflict of interest. Singh imagined similar clashes as AI investments catch speed. He added, "If we got locked out of important companies in our region and couldn't invest in them because of founder conflict in AI, that would be pretty debilitating." Despite the split, Botha hopes the three independent companies see each other as cousins with a shared heritage. He added, "It's been an enormous success because we ourselves were entrepreneurial and helped give rise to four additional fabulous businesses that are now leaders in their own right." |
