Sequoia Capital: Will increase investment in encrypted assets by reshaping the investment structure

Roelof Botha, a partner of Sequoia Capital, stated in an announcement on Tuesday that the company will reshape its investment structure in the United States and Europe around a single fund. The funds are allocated to a series of closed-end sub-funds for risk investment at each stage from the establishment to the initial public offering, and then the investment returns are redeployed to future investments, and the investment will no longer have a maturity date. The Sequoia Fund will bypass the basic restrictions of venture capital and invest and hold public stocks indefinitely. In addition, Sequoia Capital will become a registered investment adviser, and will further increase investment in emerging asset classes, such as encryption currency . These changes do not apply to Sequoia China or India funds with stricter capital rules.

Roelof Botha said in an interview that he believes the past venture capital model is outdated. It is reported that Andreessen Horowitz ( a16z ) was registered as an investment advisor in 2019 and has become one of the most prolific investors in crypto-related assets since then. 

The following is the full text of the announcement by Roelof Botha, a partner of Sequoia Capital:

Innovative spirit, decisive, independent thinker, fighter and true believer, these qualities are reflected in the founders of the projects we work with, and in Sequoia’s unremitting efforts to help them succeed.

Since our establishment in 1972, we have been sitting in the front row, witnessing visionary business and technology leaders pushing the limits of possibilities. And this is just the beginning.

Ironically, the innovation of VC has not kept up with the pace of the companies we serve. Our industry is still subject to the rigid 10-year fund cycle that began in the 1970s. When the chip industry shrinks and the software industry flies to cloud computing, VC is still operating in the past mode. In the past, the 10-year fund cycle was reasonable. But the assumptions it was based on no longer hold, which cuts meaningful relationships prematurely and makes the company and their investment partners out of step.

The best entrepreneurs want to have a lasting impact on the world. Their ambitions are not limited to 10 years. We are the same.

Our experience in cooperating with industry-leading companies Apple, Google, Cisco, Unity, Snowflake, and Zoom tells us that their construction will take more than a few years. In recent years, many of our most promising companies have chosen to stay privatized longer, expand their scale and expand their strategic footprint before becoming leaders in the open market. Then they continued their advantages for decades, and most of their value accumulated over a long period of time after the IPO. For example, Square, where we worked with us in early 2011 and I am still a member of the board of directors, had a market value of $2.9 billion at the time of its 2015 IPO. Five years later, Square has grown to $86 billion, and today is worth more than $1170. “As founders, the understanding and trust we have built with Sequoia and Roelof over the years is irreplaceable,” said Jack Dorsey of Square. “At many critical moments, this history and relationship are very important to me.”

Patience and long-term partnerships can produce extraordinary results. For Sequoia, the 10-year fund cycle is outdated.

Over the years, we have been reinventing ourselves and looking for outstanding entrepreneurs. We expanded from Silicon Valley to markets in China, India, Southeast Asia and Europe, tracking technological innovations around the world. More than ten years ago, we developed the first Scouts project in the industry. We have also initiated a series of actions from recruitment, customer roundtable meetings to company design and community projects to help entrepreneurs succeed.

We can do more. Today, we are happy to announce our boldest innovation to date to help founders build companies that last for the 21st century.

In our business in Europe and the United States, we are breaking the traditional organization method based on the fund cycle and reorganizing Sequoia Capital around a single permanent structure-The Sequoia fund.

Next, our limited partners will invest in The Sequoia Fund, an open-ended liquid investment portfolio consisting of open positions in our selected long-lasting companies. Sequoia Fund will allocate funds for a series of closed-end sub-funds for venture capital at each stage from establishment to listing. The returns of these venture capitals will flow back to Sequoia Fund in a continuous feedback loop. The investment will no longer have a “maturity date”. Our sole focus will be on the long-term growth of value for our company and limited partners.

This new structure eliminates the artificial time limit of our cooperation time with the company. It allows us to participate in their board of directors and helps them realize their potential in decades. Long-term cooperation with our legendary company will be the symbol of Sequoia.

It also allows us to continue to hold public stocks for a long time after the IPO, and seek the best long-term returns for our limited partners, most of which are donated to non-profit organizations and endowments. In the past five years, we have provided limited partners with unparalleled performance, and the capital allocation has clearly exceeded the capital requirements. This foundation and our track record in finding and helping to establish industry leaders have earned us the confidence to take this bold step.

As part of this change, we will also become a registered investment advisor. This expands our flexibility to support our portfolio companies through various financing activities (such as secondary or initial public offerings). It also allows us to further increase investment in emerging asset classes, such as cryptocurrency and seed investment programs.

This is a fundamental subversion of the venture capital model. We often talk to the founders about critical moments—the rare and bold decisions that shape their future. For Sequoia, this is a severe moment. This structure means for the first time that Sequoia’s partnership can last as long as the companies we work with. This move allows us to build a deeper relationship with the main promoters of innovation and value creation—our founders and their companies. We look forward to building lasting value with them as they realize their full ambitions.

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