# Behind the split of Sequoia Capital: geopolitics, investment conflicts, and future games

**Published by:** [yaletown](https://paragraph.com/@yaletown/)
**Published on:** 2023-06-08
**URL:** https://paragraph.com/@yaletown/behind-the-split-of-sequoia-capital-geopolitics-investment-conflicts-and-future-games

## Content

Sequoia Capital, the world's most prominent venture capital firm, is splitting up. Sequoia Capital, known for its early investments in U.S. technology companies such as Airbnb, WhatsApp and Zoom, as well as in international giants such as ByteBeat and GoTo through its China and India funds, will now split into three completely separate companies. Sequoia's global leadership confirmed the news in a letter to LPs on Tuesday morning, signed by Roelof Botha, Neil Shen (Shen Nanpeng) and Shailendra Singh, the leaders of the three companies. The resulting companies - Sequoia Capital for the U.S. and Europe, HongShan for China and Peak XV Partners for India and Southeast Asia - are scheduled to be completed "no later than The separation is scheduled to be completed "no later than" March 2024. In a separate interview with Forbes magazine, the three investment heads said the decision to dissolve the Sequoia Global brand was gradual and lasted several months. They cited conflicts between the funds' respective startup portfolios, brand disruptions due to strategic differences and the increased complexity of maintaining centralized regulatory compliance as factors - while acknowledging, but trying to downplay - the colder geopolitical environment. "Things seem to be moving toward becoming harder, not easier," Botha said. "It's not a surrender - 'white flag, we've failed.' It's a victory, in a sense, because we have these completely independent businesses that can go farther." Founded in 1972 as a $3 million fund, Sequoia went on to become a major part of Silicon Valley's tech hub, swelling to billions of dollars in assets over the following decades through early investments in companies such as Apple, Cisco, Google and Nvidia. in the mid-2000s, the firm began setting up funds in China and India, managed by local investment partners. (It later closed its Israel fund, which was established in 1999.) But unlike Sequoia's U.S. business (which has now expanded to include Europe and Israel), which has achieved outstanding results in recent years with Airbnb, DoorDash, Snowflake, WhatsApp and Zoom, Sequoia China is proud to have its own long list of investments, including Alibaba, Meituan and TikTok's parent company ByteBeat; India and Southeast Asia The fund can identify companies such as Byju's, GoTo and Zomato. Sequoia Partners ranks highest on Forbes' "Midas List," an annual ranking of the world's top venture capitalists, with 10 investors selected for 2023, the first being Shen (Shen Nanpeng), who tops the list for the fourth time. For half of its 22-year history, Sequoia Capital has received the top honor of the Midas List. But from the beginning, Sequoia has considered its regional funds to be relatively independent, with decentralized deal flow and portfolio decisions. Partners in one geographic region do not review potential deals in another region; instead, these funds share logistical functions, including compliance, finance and investor relations, infrastructure, and an online portal for partners. Investors in these different regions overlap, and partners often invest personally in each other's funds. However, the partners say these regions have diverged in some ways, investor relations have become more localized, and each fund house is building its own software. In the future, new firms will build their own infrastructure and partners will no longer invest in each other's funds. Any profit sharing (and logistical functions) will cease between the different regional funds on December 31. Sequoia declined to comment on its previous profit arrangement. Although Sequoia has dominated venture capital for many years, recent headlines have been less than kind to its brand image. Its U.S. and European divisions are facing questions about its investment in Elon Musk's new tweet and its failure on the crypto exchange FTX. And while the U.S. fund adopted a different funding model in February 2022 through the Sequoia Capital Fund, which distributes money from a massive, open-ended fund and allows for longer equity holding periods, the move occurred before the market corrected itself. It allowed limited partners to withdraw capital in a one-time waiver, according to a report by The Information. (A person familiar with the matter said this was done to provide relief to those who needed liquidity as the market changed.) As of earlier this year, the fund had more than $13 billion in assets. Meanwhile, Sequoia's presence in China continues to grow, even as geopolitical ties between each region, particularly between the U.S. and China, become distant. According to a May report in Forbes, Sequoia China remains a major shareholder in Byte Jump, with a stake of about 10 percent that could be worth billions of dollars. Sequoia U.S. Fund is also a shareholder in ByteDance, investing in emerging portfolio companies globally through a growth fund it has set up over the past few years. ByteTok, of course, is the parent company of TikTok, which has come under repeated controversy and regulatory scrutiny from U.S. lawmakers in recent years. in 2020, the company's former global leader Doug Leone lobbied the Trump administration on behalf of ByteTok at its U.S. and European funds; last year, the fund reportedly hired the help of a Washington, D.C.-based consulting firm. Neil Shen, who remains on the board of directors of ByteDance, declined to comment specifically on the investment. But in general, he rejects the idea that separating the fund would make it easier for Chinese companies to list in Hong Kong or elsewhere. "These are no longer young companies," he said. "I don't want to overestimate our ability to assist a company with an IPO just because we have substantial ownership." In their separate interviews, Botha, Shen (Shen Nanpeng) and Singh all denied that geopolitical tensions were the specific catalyst for the change. They all said that conflicts between the expanding portfolios played a bigger factor. Well-known companies in each portfolio used to compete directly, such as Stripe in the U.S. and Airwallex in China, which competes with a Sequoia India company. But as Chinese and Indian companies seek to move out of their domestic markets earlier and the rise of remote work gradually increases, this is increasingly likely to happen, blurring geographic lines. botha recounted how a U.S.-based Sequoia portfolio company recently complained that an Indian competitor backed by a Sequoia team told potential clients that it was a big bet for the firm in the category. "It's embarrassing, isn't it?" Botha says. "From a customer's perspective, you're trying to buy technology from what you think is a Sequoia-designated company that has Sequoia's influence behind it, but now there are two, which is confusing." Singh notes that frustration can go both ways: he recounts a well-known (but unnamed) U.S. tech company complaining to its Sequoia partner in the U.S. that it believed a Sequoia India investment would be competitive in the future. But Singh said his team had written the check more than a year ago. Sequoia India has already exited. Singh imagines a similar conflict in the current boom of artificial intelligence companies. (Sequoia Capital invested in OpenAI through its U.S. fund.) "If we were shut out of investing in important companies in our region because of conflicts among AI founders, the results would be very disruptive," Singh says. The funds are split in other ways, too. While limited partners from all three geographic regions have gathered in one room to review new funds for more than a decade, Sequoia India and Southeast Asia and Sequoia China have raised their most recent funds independently - $2.85 billion and $9 billion, respectively. (Shen (Shen Nanpeng) said that while some of the money came from U.S. institutions, it was primarily "foreign money" and did not come from China itself.) While the U.S. business announced a $195 million seed fund in January that doubled its focus on early-stage investments, the China business has recently focused more on non-tech investments, including infrastructure, as well as its hedge fund public equity practice. In the U.S. and Europe, Sequoia, named after the famous California redwood tree, will continue to retain its name, which was suggested by the late Don Valentine, who had expressed a desire for the firm's name to outlive himself. Sequoia Heritage (an endowed family office) and Sequoia Capital Global Equities (a public/private crossover firm) will also continue to exist as separate businesses. Sequoia India's new name, Peak XV Partners (pronounced "fifteen"), comes from the original name of Mount Everest, Singh said. According to Shen, Sequoia China already uses the Chinese name HongShan, which means redwood tree, and will now use the English translation of "HongShan". "Many Chinese entrepreneurs may not even know how to spell Sequoia," he said. Shen (Shen Nanpeng) does not think his investor base will shift significantly because of HongShan. "If investors don't feel comfortable with China, they won't invest. I don't think choosing a new name will have any impact. But most investors are thinking in terms of returns and performance," he says. Singh, whose fund is already registered in Mauritius, says Mauritius limits funds to fewer than 100 limited partners each, and Peak XV's limited partner base already overlaps only partially with other Sequoia regions. He added that this will continue to be the case. "We love Sequoia, but our brand is built on relationships, and we think our own brand is strong and that will move us forward in a good way," Singh said. As for the post-split Sequoia, Botha scoffs at any comments that the company won't move on from its strong position (at least by its own historical standards). He still has faith in his PayPal alumni gang and fellow South African Musk, saying, "See what happens on Twitter," and that FTX, while "unfortunate," is "a great way for a fund that "has multiple other winners. other multiple winners," a small loss for a fund that "has multiple other winners. He said he wouldn't regret the shift in Sequoia's fund model even if it meant the firm continued to hold shares in companies that had gone public and whose stock prices had since fallen. "Can we distribute everything? If you look at the performance of our fund and the companies we back, it's hard to say we're in a weak position," he contends. Looking ahead, Botha said he hopes the two companies will see each other as cousins with a shared heritage, even if they no longer have any special relationship. "It's been a huge success because we were entrepreneurs ourselves and helped spawn four other great businesses that are now leaders in their own right," he said, referring to companies other than his own. As for Sequoia Capital: "I haven't been as excited about technology investments in the U.S. and Europe in a decade as I am now," Botha said. "It reminds me of the early days of the Internet."

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