Sequoia Capital splits into 3 new independent partnerships

 Sequoia Capital splits into 3 new independent partnerships

Image courtesy: Sequoia Capital

Sequoia Capital, one of the world’s most successful venture capital firms, announced that it would be splitting into three new independent partnerships. The new partnerships will focus on the United States and Europe, India and Southeast Asia, and China.

The company’s operations in Europe and the United States will retain its current name, Sequoia Capital. Its Chinese unit, Sequoia China, will use its current Chinese name, HongShan. The company’s business operations in India and Southeast Asia will be spun off into a partnership named Peak XV Partners.

Rising political tensions between the US and China seem to have influenced the split. These tensions have made it increasingly complex to run a decentralized global investment business. Crucially, the decision also aims to avoid ‘portfolio conflict’ and ‘market confusion’ due to the shared Sequoia brand. The new partnerships will have more autonomy and flexibility to make decisions that are best for their respective regions.

Additionally, the US government’s efforts to restrict the flow of US dollars into China and the changing political and economic landscape in China likely played a role in this decision. Sequoia Capital China had already slowed its pace in China significantly, with the number of deals it made between Q3 2022 and Q2 2023 dropping significantly compared to the previous period.

Also read: VC funding in Canada: Decoding the past decade of growth

Potential Impact of the Sequoia Capital split

The split is likely to have a number of potential impacts, including:

  • Increased focus on local markets: New partnerships will be able to focus on the unique challenges and opportunities facing each market. This will allow Sequoia to provide its portfolio companies with more tailored support.
  • Increased competition: The split will have the three new venture capital firms potentially compete with each other for deals. This is likely to lead to more competitive terms for portfolio companies.
  • Increased innovation: Further, the focused capital allocation may lead to increased innovation as new partnerships compete to find and invest in the best early-stage companies.

However, Sequoia is not the first venture capital firm to split. In recent years, other large firms, such as Kleiner Perkins and Aspect Ventures, have also split into multiple partnerships.

In terms of funding, Sequoia Capital has raised a total of US$35.1B across 34 funds, with the latest being Sequoia Capital Seed Fund V, and raised a total of US$195M​. Meanwhile, Peak XV Partners will now function as a fully independent venture capital firm, managing a substantial US$9.2 billion across 13 funds.

What does it mean for Canadian startups?

Sequoia Capital has a long history of investing in successful Canadian companies. Recently, in 2022, Sequoia led an investment in LAYERZERO LABS valuing it at US$1 billion. In 2021, the firm made a minority investment in SSENSE, an e-commerce company based in Montreal.

While it’s too early to tell, the split could lead to increased competition for deals among Canadian startups. Especially if the three new independent partnerships all eventually look to invest in Canada’s growing tech sector. Moreover, it’s especially not clear yet how the three entities will manage non-compete on special-situation startup deals. E.g. will they compete when a company flips to a US/Canadian holding structure from other geographies? This could probably ultimately benefit Canadian startups by giving them access to more capital options and expertise.

This is one of the biggest news to hit the global venture ecosystem in recent months. A lot remains to be seen on how it plays out.


Editor

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