Iconic venture capital firm Sequoia breaks with venture capital model to hold public stocks longer – NBC Los Angeles
- Sequoia Capital is creating a new structure so that all of its investments are grouped into a single fund called Sequoia Fund.
- “For Sequoia, the 10-year fund cycle has become obsolete,” the Silicon Valley company wrote in a blog post.
- By eliminating delays in returning capital to outside investors, Sequoia says it can keep SOEs longer.
Over the past half-century, Sequoia Capital has established itself as the envy of Silicon Valley, from the first bets on Cisco, Apple and Google to more recent victories such as Zoom, Snowflake and Airbnb.
Today, the company is completely changing the structure of its fund and declares that the current time-based investment model has “become obsolete”.
“Our industry is still subject to a rigid 10-year fund cycle developed in the 1970s,” Roelof Botha, partner at Sequoia, wrote in a blog post Tuesday. “As chips dwindled and software flew to the cloud, venture capital continued to operate on the business equivalent of floppy disks. ”
Sequoia is abandoning the 10-year venture capital fund, in which the limited partners, the external investors who contribute to the fund, expect to be paid back over a decade. The company said it is creating a single fund, the Sequoia Fund, which will raise funds from LPs and then channel that capital into a series of smaller funds that invest in stages.
The proceeds from these funds will then be reinjected into the Sequoia fund. Without a time horizon, Sequoia can hold companies open for longer periods of time, rather than distributing those shares to LPs. Investors who want cash can withdraw money instead of waiting for distributions.
Like Andreessen Horowitz two years ago, Sequoia becomes a registered investment advisor, giving it more flexibility to invest outside of venture capital restrictions. This could mean investing money in IPOs, and “it also allows us to further increase our investments in emerging asset classes such as cryptocurrencies and seed investment programs.”
The traditional venture capital model has been slowly dying out for the past decade or so, as investors from all over the world and from all walks of life have rushed into the seemingly endless bull market. VC solo raised funds and others linked to online unions for seed deals, and in contrast, private equity firms and sovereign wealth funds wrote introductory-sized checks in stock exchange.
While returns on investment have increased across the board over the past two years, Sequoia has managed to stay at the top, despite Warning Portfolio founders and CEOs at the onset of the pandemic that “we should prepare for turbulence”.
Going forward, investors will bet on Sequoia, the company, to put their money to work across the tech spectrum. Sequoia will choose the amount that will be spent on early stage start-ups, more mature companies, secondary establishments, cryptography and international transactions.
Without thematic funds, Sequoia will not have to worry about selling stocks or distributing company shares to adapt to the old venture capital framework. If a company goes public and is worth more than $ 1 trillion within two decades, Sequoia could potentially still own a good chunk of its stock.
“This new structure removes all artificial time horizons over how long we can partner with businesses,” Botha wrote.
Imagine if Sequoia had never sold its stake in Google.