Venture firm navigates geopolitical complexities, forming three independent entities
In a significant move that highlights the evolving geopolitical landscape, renowned venture capital firm Sequoia Capital has announced its decision to split into three separate entities. This restructuring will see Sequoia Capital in the U.S. and Europe, Peak XV Partners in India and Southeast Asia, and HongShan in China operate as independent regional units by March of next year.
The decision to separate the Asian units from the mothership comes against the backdrop of escalating tensions between the two largest economies in the world, China and the United States. Furthermore, the India and Southeast Asia arm of Sequoia Capital faced challenges related to optics and governance issues within its portfolio companies last year.
Sequoia Capital addressed the split in a letter to its limited partners, emphasizing the complexity of running a decentralized global investment business. Regional leaders Roelof Botha, Neil Shen, and Shailendra Singh wrote, “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.”
While the move raises questions about the future influence and reach of the independent regional Asian units without the backing of Sequoia’s well-established brand and reputation, it may also encourage other venture firms to consider similar actions or seriously evaluate the possibility.
This unexpected development follows a challenging period for U.S. venture capital funds that invest in China. The Biden administration has been implementing measures to limit the flow of U.S. dollars into China, a market where Sequoia Capital has been instrumental in fueling the country’s consumer internet sector for the past two decades.
The administration’s strategy is seen as an effort to restrict China’s development of critical technologies for national security purposes, including artificial intelligence, quantum computing, and semiconductors. President Biden sought support from allied countries at the G-7 summit in late April for his plans to curb foreign investments in China.
Sequoia Capital China had already significantly slowed its investment pace in the country. Although the firm raised an impressive $9 billion in funding last July, it completed only 62 deals between Q3 2022 and Q2 2023, compared to 177 deals between Q3 2021 and Q2 2022, according to Crunchbase data.
The cautious approach adopted by Sequoia Capital China reflects the evolving political and economic landscape in China. The regulatory crackdown on the country’s consumer internet industry over the past three years has led most U.S.-dollar venture capital funds to reduce their investments. Moreover, venture capitalists worldwide have become more conservative amid the global economic slowdown.
The impact of the Biden administration’s policies on U.S. venture capital investment in China remains uncertain. As HongShan, the newly independent entity, enters this new era, it will face the challenge of competing with China’s homegrown venture capital firms. The tech sector’s growth is expected to favor deep tech investments over consumer internet ventures.
Meanwhile, Peak XV Partners, previously known as Sequoia Capital India and Southeast Asia, will focus on deploying the $2.5 billion it raised last year. With a strong track record of raising $9.2 billion across 13 funds and investing in over 400 startups in the region, Peak XV Partners is well-positioned to continue supporting entrepreneurial endeavors in India and Southeast Asia.
The split of Sequoia Capital represents a significant development in the venture capital landscape, reflecting the intricate relationship between geopolitics, economic factors, and investment strategies.