Key Takeaways
- • Sequoia Capital is restructuring its U.S./Europe business around a single, permanent, open-ended vehicle called The Sequoia Capital Fund, abandoning the traditional 10-year fund cycle.
- • The new structure combines an open-ended liquid portfolio of public positions in Sequoia's enduring companies with a series of closed-end sub funds for venture investments from inception to IPO, with proceeds recycled back in a continuous feedback loop.
- • Sequoia is becoming a registered investment adviser, expanding its flexibility to support portfolio companies through secondaries and IPOs and to increase investments in emerging asset classes such as cryptocurrencies and seed programs.
- • The firm cites Square as evidence of the case for patient capital: market capitalization of $2.9B at its 2015 IPO, grown to $86B five years later, and above $117B at the time of the announcement.
Summary
Sequoia Capital announced on October 26, 2021 that it is breaking with the traditional venture capital fund structure in its U.S./Europe business. The firm said the industry remains tied to a rigid 10-year fund cycle, which it described as a model pioneered in the 1970s that no longer fits the longer private and post-IPO growth periods of today's category-defining companies. Sequoia cited Apple, Google, Cisco, Unity, Snowflake and Zoom as examples of companies that take more than a few years to build.
Under the new arrangement, Sequoia Capital is restructured around The Sequoia Capital Fund, a permanent vehicle with no expiration date. Limited partners will invest into an open-ended liquid portfolio of public positions in a selection of Sequoia's enduring companies. That vehicle will allocate capital to a series of closed-end sub funds making venture investments at every stage, from inception to IPO. Proceeds from those investments flow back into The Sequoia Capital Fund in a continuous loop. The firm said the structure removes artificial time horizons, allowing it to sit on portfolio company boards for decades and to hold public shares long after IPOs. According to the announcement, most of Sequoia's limited partners are nonprofits and endowments, and the firm pointed to capital distributions meaningfully outpacing capital calls over nearly five decades.
Sequoia also disclosed that it is becoming a registered investment adviser. The firm said this will allow it to support portfolio companies through financing events such as secondaries or IPOs, and to increase investments in emerging asset classes including cryptocurrencies and seed investing programs. Sequoia pointed to Square, which it partnered with in early 2011 and on whose board Roelof Botha remains a director. Square had a market capitalization of $2.9B at its 2015 IPO, grew to $86B five years later, and is worth over $117B according to the firm. Jack Dorsey, Square's chief executive, said the trust built with Sequoia and Botha over many years has been crucial at defining moments.
The disclosure is framed by Sequoia as a fundamental disruption of the venture capital model. The announcement includes a disclaimer that it is not an offer to invest in any fund, that any offering will be made via a confidential private placement memorandum, and that past performance and the cited Square figures are not indicative of future results or of the Funds' overall performance.
Under the new arrangement, Sequoia Capital is restructured around The Sequoia Capital Fund, a permanent vehicle with no expiration date. Limited partners will invest into an open-ended liquid portfolio of public positions in a selection of Sequoia's enduring companies. That vehicle will allocate capital to a series of closed-end sub funds making venture investments at every stage, from inception to IPO. Proceeds from those investments flow back into The Sequoia Capital Fund in a continuous loop. The firm said the structure removes artificial time horizons, allowing it to sit on portfolio company boards for decades and to hold public shares long after IPOs. According to the announcement, most of Sequoia's limited partners are nonprofits and endowments, and the firm pointed to capital distributions meaningfully outpacing capital calls over nearly five decades.
Sequoia also disclosed that it is becoming a registered investment adviser. The firm said this will allow it to support portfolio companies through financing events such as secondaries or IPOs, and to increase investments in emerging asset classes including cryptocurrencies and seed investing programs. Sequoia pointed to Square, which it partnered with in early 2011 and on whose board Roelof Botha remains a director. Square had a market capitalization of $2.9B at its 2015 IPO, grew to $86B five years later, and is worth over $117B according to the firm. Jack Dorsey, Square's chief executive, said the trust built with Sequoia and Botha over many years has been crucial at defining moments.
The disclosure is framed by Sequoia as a fundamental disruption of the venture capital model. The announcement includes a disclaimer that it is not an offer to invest in any fund, that any offering will be made via a confidential private placement memorandum, and that past performance and the cited Square figures are not indicative of future results or of the Funds' overall performance.
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