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Illustration: Sarah Grillo/Axios

Sequoia Capital is some of the smartest money on Sand Hill Road, with a decades-long knack for making early bets on world-changing companies. So how did it just make the sort of mistake that even the greenest of "Shark Tank" wannabes wouldn't make?

The bottom line: Sequoia got stuck inside of its own filter bubble.

Driving the news: Sequoia last month announced that it led a $35 million Series B round for Finix, a San Francisco-based payments infrastructure platform.

  • As TechCrunch first reported, Sequoia subsequently decided that its investment was in conflict with existing portfolio company Stripe, and opted to walk away.
  • This meant effectively donating its $21 million check to Finix, which then raised an additional $10 million from PSP Growth and existing backers like Inspired Capital — with PSP's Penny Pritzker taking the board seat that originally belonged to Sequoia.

So what really happened? Yes, Sequoia did due diligence, and initially determined that neither the product nor business models were competitive.

  • Product: Finix is kind of a choose-your-own-adventure for payments, creating API building blocks that clients can mix and match. The advantage is flexibility. Stripe is more holistic, offering an already-assembled solution. The advantage is ease-of-use.
  • Business model: Finix requires its clients to become payments companies themselves, whereas Stripe acts as the payments company. That basically means that Finix users bear both interchange risks and upside, whereas Stripe users bear neither.

The trouble was that these nuanced distinctions were only really understood by experienced payments professionals, and that's who Sequoia spoke with during due diligence.

  • It didn't also talk with the ordinary merchants and software companies that view Finix and Stripe as rivals because, in the end, they're competing for the same customers and offering solutions to the same problem.
  • But, after making the investment, Sequoia did begin learning more about how normies understood the market.

Sequoia and Finix did discuss the possible Stripe conflict during negotiations, although it's unclear if Sequoia had the same conversations with Stripe. It's our understanding, however, that Stripe did not ask Sequoia to walk away from Finix — that's a decision the VC firm made on its own.

  • One thing we still don't know is if Sequoia's limited partners are being refunded for their investment. Working on that...

The takeaway isn't that the king got taken down a notch, even though it did. It's a reminder that you can't be the smartest guys in the room if you don't learn from those who might seem to know less.

Editor's note: The story has been corrected to note that PSP Growth wasn't an existing investor.

Go deeper

"Atmospheric river" swings Northern California from drought to flood

Satellite view of the bomb cyclone swirling off the coast of the Pacific Northwest and the atmospheric river affecting California on Oct. 24. Photo: CIRA/RAMMB

A series of powerful "atmospheric river" storms are delivering historic amounts of rainfall across parts of drought-stricken California and the Pacific Northwest.

Why it matters: The atmospheric river, packing large amounts of moisture, was causing Northern California to whiplash from drought to flood, as it slowly moved south overnight. It's triggered widespread power outages, flooding and mudslides.

Updated 1 hour ago - World

U.S. threatens to cut aid to Sudan after military takeover

Sudanese Prime Minister Abdallah Hamdok during a 2020 news conference in Khartoum, Sudan. Photo: Mahmoud Hjaj/Anadolu Agency via Getty Images

Sudan's civilian Prime Minister Abdalla Hamdok was put under house arrest and several other ministers were detained Monday in what appears to be a military coup in the country, per local reports.

The latest: The head of the military faction of the Sudanese government, Gen. Abdul Fattah al-Burhan, said in a statement that he is announcing a state of emergency, suspending several parts of the interim constitution and dissolving the civilian government and interim sovereignty council — the highest governing body in the country.

Facebook's pivotal week

Illustration: Aïda Amer/Axios

They're battening down the hatches at Facebook headquarters this week as the company faces a trifecta of tumult: a continuing wave of negative press coverage fueled by document leaks, a critical earnings report Monday and a reported name change looming.

The big picture: All this is unfolding as Mark Zuckerberg tries to transform Facebook from a social network into the prime mover behind a new "metaverse" of VR- and AR-driven remote work and play.