Venture Capital (VC) giant Sequoia Capital would separate its China, India, and South East Asia operations from the US operations citing “complexity.” However, the timing of the split has raised eyebrows as it comes at a time of heightened tensions between the US and China.
Sequoia is among the major VC funds globally and has in the past invested in names like Zoom, PayPal, and Apple. It also invested in TikTok’s parent company ByteDance.
TikTok has been at the center of controversy and last month Montana became the first US state to ban TikTok.
Sequoia informed investors of its decision through a joint message from Neil Shen, Roelof Botha, and Shailendra Singh who are respectively the managing partners for China, Europe and US, and Southeast Asia business.
“It has become increasingly complex to run a decentralized global investment business,” said Sequoia’s investor note.
The note added, “We’ve seen growing market confusion due to the shared Sequoia brand as well as portfolio conflicts across entities.”
Sequoia expects to complete the reorganization before the first quarter of 2024. It said that “To deliver on our mission, we have decided to fully embrace our local-first approach.”
Notably, even before the split, Sequoia’s different geographical regions were fairly independent and decentralized. They did however share back office and at times partners invested in each other’s funds.
Under the new structure though the three entities would have their own back offices and partners won’t invest in the other funds.
Sequoia to Split Its Business into Three
While Sequoia has made some very profitable investments globally over the years, like fellow VC and private equity funds, even some of its recent investments haven’t gone as per plan.
For instance, it backed Elon Musk’s purchase of Twitter. Fidelity, which also backed the deal has marked down Twitter’s valuation by two-thirds of what it was at the time of the acquisition.
Sequoia also invested in the now-bankrupt crypto exchange FTX. But then, the company cannot be singled out for backing the exchange and its flamboyant founder Sam Bankman-Fried who’s popularly known by the initials “SBF”.
My Sequoia hot take is that the new Chinese and Indian entities didn’t want to deal with the reputational overhang from the U.S. entity’s association with FTX/SBF. Otherwise why ditch the brand name? Even the Tiger cubs didn’t do that
— arbed_out (@arbedout) June 6, 2023
Singapore’s state fund Temasek – which was the largest FTX investor and has invested $275 million in the company – has also written off the investment.
Last month, Temasek cut compensation for staff who were responsible for the FTX investment – even as the company ruled out any “misconduct.”
Are Geopolitical Tensions to Blame for Sequoia’s Split
Sequoia has sought to downplay the rising geopolitical tensions between the US and China and has instead pointed out that decentralization would help the different businesses work more efficiently.
That said, its deal activity in China has slowed down significantly. Its most recent fund named Sequoia Capital China Venture Fund VIII raised around $9 billion last year.
Incidentally, US-based VC firms investing in China are facing a double whammy. On the one hand, the US is looking to restrict investments of US companies into China while on the other hand, China has cracked down on new-age tech companies which has hit the VCs that invested in them.
While the Nasdaq 100 has gained around 33% in 2023 and has added over $4 trillion in its market cap, the Hang Seng Tech Index is down almost 10% YTD.
SoftBank, which was once among the major investors in Chinese tech companies, has also rolled back its bets.
The Japanese private equity giant held over a quarter of Alibaba shares three years back and was its biggest stockholder. However, amid China’s tech crackdown, it has sold most of the shares and filed to sell more shares through forward contracts.
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