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How Sequoia Capital’s Split Will Impact the Global VC Landscape

sequoia capital split - the future implications

Sequoia Capital, one of the most successful and influential venture capital firms in the world, has recently announced a major change in its global structure.

The firm, which has backed some of the biggest tech companies in history, such as AppleGooglePayPal and Zoom, will split into three separate and independent entities based on geography: Sequoia Capital for the US and Europe, HongShan for China, and Peak XV Partners for India and Southeast Asia.

The split will be completed by March 2024.

But why did Sequoia Capital decide to split? What are the implications of this move for the global VC landscape? And how will it affect the future of innovation and entrepreneurship?

The Reasons Behind the Split

According to a press release co-authored by the regional heads Roelof Botha, Neil Shen and Shailendra Singh, the decision to split was driven by two main factors: portfolio conflicts and geopolitical tensions.

Portfolio Conflicts

As Sequoia Capital expanded its presence and influence in China and India, two of the largest internet markets in the world, it encountered situations where its portfolio companies clashed with each other across regions.

This created confusion and frustration for both the entrepreneurs and the investors.

For example, Stripe (a Sequoia US investment) competes with Airwallex (a Sequoia China investment) in the online payments space.

Similarly, a US-based Sequoia portfolio company complained that an Indian-based rival backed by Sequoia India was telling prospective customers that it was the firm’s big bet in the category.

Sequoia India also faced a complaint from a prominent US tech company about a potential conflict with one of its investments in the AI domain.

To avoid such conflicts and to embrace a local-first approach, Sequoia Capital decided to split into three independent firms that will operate under different brands.

The US and Europe venture capital business will continue to be known as Sequoia Capital, led by Roelof Botha.

The China business will retain its existing name in Chinese and adopt the name HongShan in English, led by Neil Shen. The India and Southeast Asia business will become Peak XV Partners, led by Shailendra Singh.

Geopolitical Tensions

Another factor that influenced Sequoia Capital’s decision to split was the rising geopolitical tensions between the US and China, which have affected the regulatory environment and the investment climate for tech companies.

As the Chinese government extends a regulatory crackdown on tech companies and US investment firms grow more reluctant to pour money into China, Sequoia Capital found it increasingly hard to navigate the policy landscape.

Sequoia Capital China has been a pioneer in backing some of the local giants such as ByteDanceJD.com and Didi, which have been under mounting scrutiny from US regulators and lawmakers.

Losing Shen’s ability to pick local winners would be a loss for Sequoia Capital.

But such a dramatic shake-up seems more likely after Sequoia in October announced a major restructuring to its US and European funds that should give it more power to win deals against a growing pool of competitors.

The Implications of the Split

The split of Sequoia Capital into three entities will have significant implications for the global VC landscape, as it will create new opportunities and challenges for both the investors and the entrepreneurs.

  • For investors:

    The split will create more competition and collaboration among the three entities, as well as other VC firms in different markets.
    The three entities will have no special relationship with each other, but will share a common heritage and respect.
    Botha said that he hopes the firms will consider each other cousins with a shared heritage.
    Shen said that he is grateful for the support from Sequoia over the years and looks forward to building HongShan into a leading VC firm in China.
    Singh said that he is excited to launch Peak XV Partners as a new brand with a strong team and portfolio.

  • For entrepreneurs:

    The split will create more options and flexibility for entrepreneurs who are looking for funding from Sequoia Capital or its affiliates.
    The three entities will have different fundraising and investment strategies, as well as different areas of expertise and focus.
    For example, Sequoia Capital US doubled down on early stage investing with China prioritising non-tech investing including infrastructure and public equities.
    Entrepreneurs will be able to choose the entity that best suits their needs and goals.

  • For innovation:

    The split will also have an impact on the future of innovation and entrepreneurship globally, as it will reflect the changing dynamics of venture investing globally. As geopolitical tensions, market complexity and local opportunities shape the future of innovation, Sequoia Capital’s split will enable each entity to adapt to their respective markets and support their local ecosystems.

Conclusion

Sequoia Capital’s split into three entities is a major shift in the global VC landscape, as it will create new dynamics and opportunities for both the investors and the entrepreneurs.

The split also reflects the changing nature of venture investing globally, as geopolitical tensions, market complexity and local opportunities shape the future of innovation.

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