By Roelof Botha for Team Sequoia
The creative spirits. The underdogs. The resolute. The independent thinkers. The fighters and the true believers. This ethos describes the founders we partner with, as well as Sequoia’s relentless drive to help them succeed.
Since 1972 we’ve had a front row seat as visionary business and technology leaders pushed the bounds of the possible. And it’s just the beginning.
Ironically, innovations in venture capital haven’t kept pace with the companies we serve. Our industry is still beholden to a rigid 10-year fund cycle pioneered in the 1970s. As chips shrank and software flew to the cloud, venture capital kept operating on the business equivalent of floppy disks. Once upon a time the 10-year fund cycle made sense. But the assumptions it’s based on no longer hold true, curtailing meaningful relationships prematurely and misaligning companies and their investment partners.
The best founders want to make a lasting impact in the world. Their ambition isn’t confined to a 10-year period. Neither is ours.
Our experience with category-defining companies — Apple, Google, Cisco, Unity, Snowflake, Zoom — has taught us that they take more than a few years to build. In recent years, many of our most promising companies have chosen to stay private longer, building scale and expanding their strategic footprint before debuting as public market leaders. They then compound their advantage for decades, with much of their value accruing long after an IPO. Square, for instance, which we partnered with early in 2011 and where I remain on the board of directors, had a market capitalization of $2.9B at the IPO in 2015. Five years later Square grew to $86B, and today is worth over $117B. “As a founder, the understanding and trust we’ve built with Sequoia and Roelof over many years are irreplaceable,” says Jack Dorsey of Square. “That history and relationship has been crucial to me at defining moments.”
Patience and long-term partnerships generate exceptional results. For Sequoia, the 10-year fund cycle has become obsolete.
Over the years, we’ve reinvented ourselves in our quest to discover outlier founders. We followed technology innovation around the world as we expanded from Silicon Valley into China, India, South-East Asia and Europe. We developed the industry’s first Scouts program over a decade ago. And we’ve launched initiatives to help founders succeed, from recruiting and customer roundtables to company design and community programs.
We can do more. Today, we are excited to announce our boldest innovation yet to help founders build enduring companies for the 21st century.
In our U.S./Europe business, we are breaking with the traditional organization based on fund cycles and restructuring Sequoia Capital around a singular, permanent structure: The Sequoia Fund.
Moving forward, our LPs will invest into The Sequoia Fund, an open-ended liquid portfolio made up of public positions in a selection of our enduring companies. The Sequoia Fund will in turn allocate capital to a series of closed-end sub funds for venture investments at every stage from inception to IPO. Proceeds from these venture investments will flow back into The Sequoia Fund in a continuous feedback loop. Investments will no longer have “expiration dates.” Our sole focus will be to grow value for our companies and limited partners over the long run.
This new structure removes all artificial time horizons on how long we can partner with companies. It enables us to participate on their boards and help them realize their potential over the course of decades. Enduring engagement with our legendary companies will be Sequoia’s hallmark.
It also lets us hold public shares long after the IPO and seek the best long-term returns for our limited partners, the majority of which go to nonprofits and endowments. For nearly five decades, we have delivered unparalleled performance to our limited partners, with capital distributions meaningfully outpacing capital calls. That foundation and our track record of finding and helping build category winners has earned us their confidence to take this bold step.
As part of this change, we are also becoming a registered investment adviser. This expands our flexibility to support our portfolio companies through various financing events, such as secondaries or IPOs. It also enables us to further increase our investments in emerging asset classes such as cryptocurrencies and seed investing programs.
This is a fundamental disruption to the venture capital model. We often talk with our founders about crucible moments — the rare, bold decisions that shape their future. This is a crucible moment for Sequoia. For the first time, this structure means Sequoia’s partnerships can be every bit as enduring as the companies we work with. This move lets us foster deeper relationships with the principal drivers of innovation and value creation — our founders and their companies. We look forward to building lasting value with them as they realize the full scale of their ambition.
The information contained herein has been prepared by Sequoia Capital Operations, LLC (together with any affiliates, “Sequoia”) and is being provided to you for informational purposes as background on Sequoia’s recent investment activities. This is not an offer to invest in any fund (“Fund”) managed by Sequoia. Any offers will be made only by means of a confidential private placement memorandum which will include important risk factors and considerations that should be carefully evaluated before making an investment in the applicable Fund. Any decision to invest in any Fund must be based solely upon the information set forth in the applicable confidential private placement memorandum.
The information herein is given in summary form and does not purport to be complete. Investors should understand that the post-IPO performance of the portfolio companies discussed herein is not indicative of the results that have been achieved by other Sequoia portfolio companies. Please also note that the examples herein are illustrative and do not reflect performance of the Funds as a whole.