Sequoia to restructure itself away from traditional VC model

Sequoia Capital, one in all Silicon Valley’s oldest and largest enterprise capital companies, has launched a daring restructuring to create a single overarching fund.

The Sequoia Fund will soak up capital from traders and funnel it to Sequoia’s conventional enterprise funds, which spend money on US and European start-ups. It would additionally maintain Sequoia’s stakes in publicly listed corporations, akin to Airbnb.

It would additionally cost a administration charge of underneath 1 per cent, and potential efficiency charges, including an additional layer of charges on prime of its present enterprise funds, an individual briefed on the modifications mentioned.

Sequoia hopes that the bold plan will give it and its traders extra flexibility. Its traders won’t must commit their cash to a particular VC fund for a number of years whereas Sequoia will be capable of maintain on to its investments for longer than different VC funds, which usually goal to return cash to traders inside a decade.

“Investments will not have ‘expiration dates’,” wrote Sequoia accomplice Roelof Botha in a weblog put up. “Our sole focus can be to develop worth for our corporations and restricted companions over the long term.”

Sequoia additionally mentioned it could file with the US Securities and Trade Fee to turn into a registered funding adviser, permitting it to speculate extra money in cryptocurrencies, public shares and personal shares that it doesn’t buy straight from corporations.

The agency was assembly with traders this week to clarify the modifications and ask how a lot of their fund holdings they wish to contribute to the brand new construction, mentioned one individual briefed on the modifications. Sequoia manages $45bn of public inventory holdings for its companions and traders, which incorporates $43bn of funding positive factors, the individual mentioned.

Sequoia Capital China and Sequoia India won’t be a part of the restructuring. The agency’s different franchises, which embody an $8bn fund for giant non-public investments, an endowment-style fund supervisor and a public hedge fund, will even proceed to function independently of the brand new fund.

Endowments and different giant establishments have made large positive factors from enterprise investments prior to now yr, with public traders exhibiting an urge for food for lossmaking tech corporations and enterprise capitalists investing at historic paces.

The median US enterprise capital fund rose by 88.1 per cent within the 12 months via June this yr, in accordance with estimates from the funding agency Cambridge Associates.

Nevertheless, a lot of the returns stay unrealised as corporations keep non-public for longer stretches and enterprise capitalists maintain on to their public stakes in hopes of additional positive factors.

Sequoia has produced a number of the highest returns within the enterprise capital trade, with bets on Airbnb, the meal supply firm DoorDash and the enterprise software program firm Snowflake lately getting into public markets.

Many hedge funds and mutual fund managers have pushed deeper into non-public investments in recent times, however fewer enterprise funds have made the other transfer.

Sequoia mentioned the brand new fund would have a everlasting construction, just like a hedge fund, and proceeds from enterprise investments will “movement again into the Sequoia Fund in a steady suggestions loop”. Traders would be capable of withdraw cash twice a yr after an preliminary two-year lockup interval, one individual briefed on the modifications mentioned.

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