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Sequoia breakup will expose go-local consequences

Sequoia is blazing another new trail in venture capital. The firm, started in 1972 by the renowned Don Valentine, plans to separate its geographical teams, rebranding the China and India divisions, which will operate independently from the U.S. one. It’s a restructuring that speaks to geopolitical tensions, but also runs contrary to the natural evolution of such businesses. And any untangling comes with significant risks. (NEW YORK, June 6 Reuters )

As one of Silicon Valley’s pioneers, Sequoia Capital has backed everything from Apple (AAPL.O) to Zoom Video Communications (ZM.O) over the past half-century, and many others in between, including Instagram, 23andMe (ME.O) and DoorDash (DASH.N). The world has changed, however – and changed yet again – since Sequoia opened its doors. After decades of successful cross-border collaboration, amplified nationalistic strains have made the symbiosis harder to sustain.

Investments in more than 1,000 firms in China, such as (9618.HK) and Alibaba (9988.HK), exemplify Sequoia’s sway there. Its more than $50 billion under management in the country is on par with its U.S. pools of capital, too. India and Southeast Asia are smaller, with $9 billion, but the three-way autonomy is important. Sequoia doesn’t invest in rival startups, meaning a stake in a payments outfit like Stripe in theory precludes it from taking one in an Indonesian or German competitor. Sequoia’s respective geographic leaders – Roelof Botha, Neil Shen and Shailendra Singh – will now be able to make independent decisions.

Sequoia’s own investors also might appreciate the new three-way design. Pressure from politicians in both the United States and China for funds to divest stakes in the other keeps growing. Standalone entities should allow a cleaner break.

Such decoupling, as many companies and money managers are trying to figure out in myriad ways these days, invites trouble, too. The various funds inevitably will have investors from all over the world. A siloed Sequoia may force them to choose, with regional profit-sharing dissolved. Each manager also will have to prove an ability to generate above-average returns individually without an integrated, worldwide hive mind. There presumably was a reason they operated collectively for a long time in the first place.

What’s more, there will be nothing to stop, say, one of the firm’s U.S. funds from chasing a deal in Mumbai or Shanghai, and vice versa. Valentine named Sequoia after a tree that lives thousands of years, signifying a plan to survive and grow through any sort of climate. Doing so by chopping off limbs would be an impressive achievement.

Venture capital firm Sequoia Capital said on June 6 that it would separate its China, India and Southeast Asia, and U.S. and European arms into three businesses. They will have separate brands and won’t share back-office operations. The U.S. division will continue to carry the Sequoia brand.

Sequoia was started in 1972 by Don Valentine, a veteran of the then-fledgling semiconductor industry, and has invested in Apple, Alibaba, TikTok owner ByteDance, DoorDash,, Zoom Video Communications, 23andMe, Stripe, and others.

(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)

Editing by Jeffrey Goldfarb and Sharon Lam

Jeudi 8 Juin 2023