News & Analysis

Sequoia Plans Three-way Split

Operations in India and the southeast would be handled by Peak XV Partners while the original name would continue in the United States

Among the world’s largest venture capitalist Sequoia is going to operate as three entities with Peak XV Partners operating in India and Southeast Asia, HongShan in China and as Sequoia Capital in the United States. While there’s a blog post that shares information, it’s not clear why the company decided to time it at this juncture. 

A blog post starts of by announcing the Peak XV Partners venture (which got some interesting comments on Twitter with someone clarifying that it stands for Peak 15 and not ex-ve) with a statement that “Our name has changed, Our conviction has deepened,” and goes on to add that Sequoia India and Southeast Asia will be a fully independent firm now. 

The split would be completed by next March and appears to have been timed to circumvent the growing tensions between the US and China as well as the challenges that the company has faced with some of its investments in India. 

Is it about keeping the Sequoia name unblemished?

Readers may recall that Sequoia Capital India had serious charges of fraudulent practices leveled against some of its portfolio companies, for which it had pledged to proactively move and drive increased compliance. In a blog post, the venture fund had said that it was still a work in progress and all players collectively need to drive better accountability, alongside improving performance to be able to unlock India’s potential. 

The company, which did not identify any startup by name, said it would work on a broad spectrum of things such as governance training for founders and senior management, implementation of whistleblower policies, more representation for independent directors and seeking more disclosures and more adoption of internal audits and controls. 

Of course, Sequoia claims it’s just a strategic move

Coming back to the latest announcement, Sequoia downplayed the split in a letter to its partners stating that it has become increasingly complex to run a decentralized global investment business. “This has made using centralized back-office functions more of a hindrance than an advantage. Additionally, as each entity’s portfolio has expanded to include companies that are becoming global leaders, we’ve seen growing market confusion due to the shared Sequoia brand as well as portfolio conflicts across entities, says a TechCrunch report quoting a blog. 

But, what is the strategy about? Especially in China?

Earlier, Sequoia’s India operations came under a cloud following at least three of its portfolio companies going under the lens. Fashion marketplace Zilingo had suspended founder Ankiti Bose following investigations into financial issues. The case of BharatPe co-founder and former CEO Ashneer Grover is quite well-known as he was accused of siphoning off money. A third case came up with Trell was probed for the same reason and for lying about growth metrics. 

Whether it is a case of Sequoia wanting to sever its brand association within India and China to maintain it in the United States, one will never know at the moment but the fact remains that the company could well have set a template for its competitors when it comes to their investments in these two geographies. 

Things are much the same for Sequoia in China as the Joe Biden administration has been going all out to restrict the flow of dollars into the region. Of course, this leaves venture capital firms with little option but to redraw their strategies in the region, which has seen major investments from them in the consumer internet sector.

Political analysts that we spoke to claimed that Washington could be behind this move due to the growing importance of China in the global power axis, especially its recent slant towards Moscow in matters that are important to the United States. By curtailing investments, the US feels China could suffer in tech development around AI, quantum computing etc. As if on cue, Sequoia Capital did just 62 deals between Q3 of 2022 and Q2 of 2023 compared to 177 deals in the previous twelve months, data from Crunchbase reveals.

Peak XV appears to be more of the same

A blog post by Peak XV partner Shailendra Singh clarifies that the three entities were always meant to function as separate entities with independent investment decision-making. “Over the years the strategies for each business have diverged and our scale and market leadership across different geographies has started to result in brand confusion and portfolio conflict,” he says, adding that this led to the decision to make them distinct brands. 

Shailendra quotes numbers to suggest that Sequoia India & SEA had a successful run. He says they raised USD 9.2 billion across 13 funds, invested in over 400 start-ups in the region, resulting in over 50 companies crossing $1 billion valuations. In addition there were 19 IPOs and multiple M&A events resulting in $4.5 billion of realized assets so far.  

He reveals that Peak XV has a purse of USD 2.5 billion of uninvested capital to continue their mission of supporting outlier founders and doubling down in the region and beyond. And they will continue to focus on existing sectors including SaaS, AI, developer tools, cyber security, cloud infrastructure, fintech, climate tech, healthtech and consumer. 



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