Sequoia to restructure itself away from traditional VC model
Sequoia Capital, one of Silicon Valley’s oldest and largest venture capital firms, has launched a bold restructuring to create a single overarching fund.
The Sequoia Fund will take in capital from investors and funnel it to Sequoia’s traditional venture funds, which invest in US and European start-ups. It will also hold Sequoia’s stakes in publicly listed companies, such as Airbnb.
It will also charge a management fee of under 1 per cent, and potential performance fees, adding an extra layer of fees on top of its existing venture funds, a person briefed on the changes said.
Sequoia hopes that the ambitious plan will give it and its investors more flexibility. Its investors will not have to commit their money to a specific VC fund for several years while Sequoia will be able to hold on to its investments for longer than other VC funds, which typically aim to return money to investors within a decade.
“Investments will no longer have ‘expiration dates’,” wrote Sequoia partner Roelof Botha in a blog post. “Our sole focus will be to grow value for our companies and limited partners over the long run.”
Sequoia also said it would file with the US Securities and Exchange Commission to become a registered investment adviser, allowing it to invest more money in cryptocurrencies, public stocks and private shares that it does not purchase directly from companies.
The firm was meeting with investors this week to explain the changes and ask how much of their fund holdings they want to contribute to the new structure, said one person briefed on the changes. Sequoia manages $45bn of public stock holdings for its partners and investors, which includes $43bn of investment gains, the person said.
Sequoia Capital China and Sequoia India will not be part of the restructuring. The firm’s other franchises, which include an $8bn fund for large private investments, an endowment-style fund manager and a public hedge fund, will also continue to operate independently of the new fund.
Endowments and other large institutions have made big gains from venture investments in the past year, with public investors showing an appetite for lossmaking tech companies and venture capitalists investing at historic paces.
The median US venture capital fund rose by 88.1 per cent in the 12 months through June this year, according to estimates from the investment firm Cambridge Associates.
However, much of the returns remain unrealised as companies stay private for longer stretches and venture capitalists hold on to their public stakes in hopes of further gains.
Sequoia has produced some of the highest returns in the venture capital industry, with bets on Airbnb, the meal delivery company DoorDash and the business software company Snowflake recently entering public markets.
Many hedge funds and mutual fund managers have pushed deeper into private investments in recent years, but fewer venture funds have made the opposite move.
Sequoia said the new fund would have a permanent structure, similar to a hedge fund, and proceeds from venture investments will “flow back into the Sequoia Fund in a continuous feedback loop”. Investors would be able to withdraw money twice a year after an initial two-year lockup period, one person briefed on the changes said.