Sequoia Capital has decided to break with the "obsolete" traditional venture capital model based on fund cycles for its US and Europe business in what the backer of blue-chip companies like Apple, Google, Cisco and Zoom has dubbed as its boldest decision yet.
The Menlo Park headquartered venture capital firm, which was founded in 1972 by Don Valentine, will restructure itself around a singular, permanent structure, The Sequoia Fund, for it US and Europe business.
Roelof Botha, partner at the Menlo Park headquartered venture capital firm, said in a blogpost that going forward, its Limited Partners (LPs) will invest in The Sequoia Fund, an open-ended liquid portfolio. The fund in turn will allocate capital to close-ended sub funds across stages from inception to initial public offering (IPO). Proceeds from these investments from close-ended sub funds will flow back into The Sequoia Fund. Investments will no longer have “expiration dates”, it noted.
As part of this decision, Sequoia Capital is also becoming a registered investment adviser.
"This expands our flexibility to support our portfolio companies through various financing events, such as secondaries or IPOs. It also enables us to further increase our investments in emerging asset classes such as cryptocurrencies and seed investing programs," it said.
Sequoia Capital explained that innovations in venture capital haven’t kept pace with the companies it serves and the industry is still beholden to a rigid 10-year fund cycle pioneered in the 1970s.
"As chips shrank and software flew to the cloud, venture capital kept operating on the business equivalent of floppy disks," said Botha.
He added that the best founders want to make a lasting impact in the world and their ambition isn’t confined to a 10-year period and nor for Sequoia.
He further explained that its experience with investments in Apple, Google, Cisco, Unity, Snowflake, Zoom has taught them that they take more than a few years to build.
Besides, many of its "most promising companies" have chosen to stay private longer recently. These companies then compound their advantage for decades, with much of their value accruing long after an IPO, it said.
"Patience and long-term partnerships generate exceptional results. For Sequoia, the 10-year fund cycle has become obsolete," it underscored.
The new structure will allow Sequoia Capital to remove all artificial time horizons on how long it can partner with companies and let it hold public shares long after the IPO and seek the best long-term returns for its LPs.
Sequoia Capital has also been the most active investor in India. It has invested in more than 130 startups in India including unicorns such as Ola, MuSigma and Zomato, though it was not an early investor in any of them.
Last year, Sequoia received commitments worth $1.35 billion (about Rs 10,030 crore) across a venture fund and a growth fund. This was the largest corpus that the storied venture capital firm has raised for India and Southeast Asia.
In India, Sequoia Capital also intensified its focus on early-stage bets when it launched the Surge programme in January 2019. It also hired Rajan Anandan, who was Google's Southeast Asia and India vice-president, as a managing director in April 2019 to focus on Surge.
The venture capital firm has also launched a separate India focused seed fund to deepen its focus on early stage bets.
An email sent to Sequoia Capital India to understand what this new change would mean for the country did not elicit a response