Sequoia Capital splits up
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Sequoia Capital is returning to its roots, announcing on Tuesday that its China and India affiliates each will become independent entities.
Why it matters: Sequoia is one of the world's oldest venture capital firms, and arguably its most successful.
Backstory: The firm was founded over 50 years ago in Silicon Valley, backing such companies as Apple, and made its first international foray with an Israeli fund during the dotcom boom.
- Sequoia Israel was ultimately discontinued, but the firm entered China in 2005 and the next year launched in India via the purchase and integration of a local firm called Westbridge Capital Partners. In 2020, Sequoia put its first partner on the ground in Europe.
- The China and India efforts were quasi-independent and led by homegrown investors, reflecting the hard lessons other Silicon Valley firms had learned from failed experiments of relocating U.S. partners overseas.
- Sequoia's structure was successful, but eventually led to some portfolio conflicts, strategy differences and non-U.S. teams thirsting to be truly independent. Not surprisingly, neither Sequoia China nor India were part of the parent firm's giant portfolio reorganization in late 2021.
- Also playing a factor in the split decision were rising geopolitical tensions between the U.S. and China, although that appears to have been more of a contributing factor than a primary driver.
Details: The decoupling, or detripling as it were, is expected to be completed by March 31, 2024.
- The U.S. and Europe business will retain the Sequoia Capital brand, while Sequoia Capital China will be rebranded as HongShan and the Sequoia India business as Peak XV Partners.
Behind the scenes: My understanding is that Sequoia partners have long made personal investments in Sequoia funds outside of their own region, such as a Menlo Park-based investor participating in a Sequoia China fund (via a side vehicle that also includes founders, friends and family). Such legacy investments will be retained, but no new ones will be made going forward.
- Moreover, word is that all Sequoia partners also have an opportunity to share in a portion of carry from affiliate funds, via a structure more similar to a flow than to a stock. Once that gets trued up to net zero, that profit-sharing will end.
- Once the split is completed, none of the newly independent firms will have any geographic investment restrictions outside of what might be contained in limited partner agreements.
The bottom line: Sequoia may have grown a bit too big for its branches.
