The Sequoia Empire is over—what next?

Goodbye Sequoia, hello HongShan and Peak XV

Jun 09, 2023

Hi there,

In what is the first of hopefully many for Asia Tech Review, we have an editorial piece for you today. How, after all, could I resist writing about the huge Sequoia breakup, when I’ve been writing about the world’s most successful VC firm for a decade.

This newsletter has been a weekly news recap email since 2014, but there’s always been an ambition to write original content—until now it simply wasn’t possible as I was either working for a media company (conflict) or preoccupied with a busy job. Now, however, you can expect reported stories or opinion pieces from time to time. (Yes, ATR is open to freelancers—with compensation.)

That’s all for now—see you on Monday with the weekly recap.

Best,

Jon

The Sequoia Empire is over—what next?

“The fall of the empire,” as one veteran investor in Southeast Asia put it to me, doesn’t happen often. But this week, Sequoia—the world’s most storied venture capital firm with over $85B in AUM—dropped a bomb when it announced it would decouple its China and India-Southeast Asia funds from the US mothership after 17 years together.

The message was delivered via a well-spun and very-on-message Forbes article, featuring interviews with US head Rolef Botha, China head Neil Shen and India-Southeast Asia head Shailendra Singh.

Sequoia US (and Europe) will remain Sequoia, Sequoia China becomes HongShan and Sequoia India and Southeast Asia will be known as Peak XV.

Unfortunately Twitter embeds still don’t work on Substack, but you can find the tweet here

ByteDance and politics

There’s already been great follow-up analysis on the China fund split so I won’t repeat too much, but a lot has focused on whether geo-political issues are a key reason for the change.

From the Forbes story:

In their separate interviews, Botha, Shen and Singh all denied that geopolitical tensions were a specific catalyst for the move. Conflict between their broadening portfolios played more of a factor, they all said.

Jessica Lessin, the founder of The Information—which has repeatedly predicted this split—offered a counterpoint in her weekly newsletter:

The real reason for the split isn’t that the funds are now mature enough to fly on their own, as they say. Nor is it true that the Sequoia brand itself isn’t recognizable in China. Fund confusion? That hasn’t seemed to be a problem for the past 18 years.
The only reason the firm did a 180 and broke apart the very funds it so recently drew closer was that it felt that was the only way to protect its investments, especially one giant one: its huge stake in ByteDance. That’s worth about $20 billion on paper.

It was, as Lessin noted, also awkward to see Sequoia China investing in AI startups on the mainland all the while there’s a tech superpower race between the US and China featuring, among other tech, AI. Yes, AI is the hot topic but at the expense of being caught in the crosshairs of major international tension?

In this analogy, India/Southeast Asia is collateral damage—and the firm that has to fully rebrand. But let’s look down the pike at what might come next, especially in Southeast Asia.

When will the former Sequoia funds compete?

Life comes at you fast. Days ago united, but now it seems inevitable, to me, VCs, founders and journalists I spoke to in recent days, that the three funds will compete once the formal separation is completed (by March 2024 at the latest) and any non-competes expire.

We can speculate, but the basic reasoning is quite straightforward.

Why would Sequoia (US) withdraw its footprint in China only to also abandon India, the next largest country and an emerging market with a startup ecosystem that has already seen exits and is poised to grow further. You’d wager it wouldn’t. So, in due course, we may see Sequoia staff up in India and go after deals.

The same applies to Southeast Asia, which is a little further behind India on the growth curve right now.

US firms began to do deals in Southeast Asia during Covid (as remote dealmaking became a thing) and, not only that, but Chinese entrepreneurs/startups are increasingly relocating to Singapore and the broader region to build global businesses or go after more local opportunities.

You can bet that HongShan—formerly Sequoia China—will be focused on such opportunities.

And, finally, the US is still such a pivotal market for any startup that both HongShan and Peak XV will look to do some level of business there. Then there’s also the diaspora founders who might have an affinity with investors from Asia. Don’t forget, also, that HongShan has some $6 billion to deploy so ignoring what is still the world’s top startup ecosystem doesn’t really make sense.

Singh—who has initially been more active in the press than Shen or Botha—confirmed as much in an interview with MoneyControl in which he said his firm will double down on India, Southeast Asia and “other core markets.”

On helping portfolio companies overseas, he added:

We will go over to the US in the second half of the year, bring on board "go to market" leaders, recruit leaders to be able to serve 100s of companies and help them expand more actively in the US. So we will directly go and help in building capabilities for our companies in the US. That is something we expect to do differently in the near term.

(Interestingly, he said in the same article that he doesn’t believe Sequoia US has plans to invest in India…)

Is India and Southeast Asia hit hardest?

In terms of immediate impact, Peak XV appears to be hit the hardest with a full rebrand (more on that later) whereas the US fund has retained the Sequoia name and China has retained the translated name it had already used—Shen, himself, jokingly/not jokingly pointed out that many founders probably couldn’t spell Sequoia.

Dropping a name might not seem like a big deal—especially since Peak XV raised two new funds, a $2B for India and $850M for Southeast Asia with what Singh claims was an LP that “only partially” overlapped with its regional siblings. He of course played up the fact that LPs back a team, their results and other factors beyond a name.

Plus, again to be clear, these are the largest funds in the region bar none.

Still, Sequoia India and Southeast Asia got a lot of gravitas from its name. That’s clear if you speak to founders (who always wanted their cheque) and other VCs, who were often green with envy at their higher profile and brand recognition.

It remains to be seen what the Peak XV brand will come to stand for.

What’s in a name?

On that note, I was quite surprised with the team. In the Forbes piece, Singh explained that Peak XV is the original name for Mount Everest, the world’s highest mountain.

“To us, it signifies the relentless pursuit of audacious goals by our founders, while overcoming challenges along the way,” the firm wrote on its blog.

I’m not a branding expert, but I’m pretty sure that any clever brand name that needs explaining doesn’t really work as well as you think. Like the joke you have to explain to get a laugh.

Bumps in the road

Maybe I’m being overly critical of the name but one area where criticism has legitimately come to Peak XV is around implosions within its portfolio companies over the last two years.

GoMechanic, once on track for a $1B valuation, was sold off in a fire sale in May after running into trouble and making mass layoffs following “grave accounting errors”
The MD of BharatPe, a $6B fintech, resigned in February 2022 following uproar after governance lapses were uncovered at the company.
Zilingo, a startup once seen as a gem in Sequoia’s Southeast Asia crown (and one started by a former Sequoia analyst), was liquidated in January 2023 after nearly a year of bitter drama which saw its CEO removed and Singh step down from the board
Then there’s One Championship—another investment championed by Singh after a chance meeting outside an elevator—which has struggled to tame wild annual loses despite having raised over $500M

These issues culminated in an open letter published in April 2022 which concludes that the firm would “take a set of proactive steps as a responsible participant of this ecosystem and do more than our fair share to drive increased compliance across our portfolio companies.” In addition, the firm considered an audit of its entire portfolio such was the blowback.

Still, there have been exits

Ultimately, Peak XV has existed with a degree of autonomy for some time, and that will obviously serve it well as a fully independent fund.

For example, it created Surge—the ~~only~~ first early-stage Sequoia programme—as part of an aggressive strategy to get into startups at earlier stages, which included seed-stage deals and even some incubated projects which were perhaps inspired by its significant ownership in Zilingo.

Singh claims the fund has returned $4.5B to LPs so far and it has had big wins including IPOs for Gojek (now GoTo), Zomato, Nykaa and Freshworks. There was also a curious deal in 2019 when budget hotel network Oyo’s founder borrowed $2B to buy shares back from Sequoia and fellow early backers Lightspeed. Oyo investor SoftBank was a driving force in the deal.

Arguably, Sequoia has a few other gems working their way to IPO, including fintech duo RazorPay (previously valued at $7.5B) and Pine Labs, which has commanded a similar valuation.

The question now will be whether it can find the next batch of startups not only without Sequoia, but potentially while competing against its former family members. Already, Singh said the firm has held off on issuing term sheets over the last month in order to do deals under the new brand. Factor in that there’s still $2.5B in unspent capital left in the kitty, and that’s a good start for any fund—even if Singh did concede he is still to speak directly to many LPs.

Being adrift of the other Sequoia vessels is a challenge requiring much scale and planning… It’s actually not unlike climbing Everest after all.

If you’re a freelancer reporter or want to contribute to Asia Tech Review, contact contributors@asiatechreview.com

Note: The original version of this post was updated to note that Surge is not the only early-stage programme that Sequoia runs (it has Arc in Europe) but it was the first—thanks to a number of readers for the info. Apologies for the oversight.