Sequoia plans to split into three entities — Sequoia Capital in the U.S. and Europe, Peak XV Partners in India and Southeast Asia, and HongShan in China — as the storied venture firm separates the Asia units from the mothership as it navigates an increasingly complex geopolitical landscape.
The split — which will go into effect by March next year — comes amid the growing geopolitical tension between China and the U.S., the world’s two largest economies. The India and Southeast Asia unit, on the other hand, confronted some optics and governance issues at its portfolio firms last year.
In a letter to its limited partners, Sequoia downplayed why it was splitting up. “It has become increasingly complex to run a decentralized global investment business,” the firm’s regional leaders Roelof Botha, Neil Shen and Shailendra Singh wrote in a blog post.
“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.”
It will be interesting to see how powerful the independent regional Asian units remain without Sequoia’s branding and cache. Sequoia’s decision, nevertheless, may prompt its rival venture firms to follow suit soon enough — or at the very least, seriously evaluate the possibility.
The surprising announcement follows an increasingly challenging period for U.S. venture capital funds that invest in China. The Biden administration has been working on programs to restrict the flow of U.S. dollars into China, where Sequoia has played a big part in fueling the country’s consumer internet sector for two decades.
The strategy is seen as a way to hobble China in its development of technologies crucial to national security, such as artificial intelligence, quantum computing and semiconductors. At the G-7 summit in late April, President Biden was seeking support from ally countries to back his plans to curb foreign investments in China.
Sequoia Capital China had already slowed its pace in China significantly. The firm raised a whopping $9 billion last July but did just 62 deals between Q3 2022 and Q2 2023, compared to 177 deals between Q3 2021 and Q2 2022, according to Crunchbase.
Sequoia Capital China is likely taking a more cautious approach to investing in China amid the changing political and economic landscape. There are other factors to its slowing activity. Most U.S.-dollar venture capital funds have scaled back their investments since the country started a sweeping regulatory crackdown on its consumer internet industry around three years ago. VCs around the world are also more conservative amid the global economic slowdown.
It remains to be seen how the Biden administration’s policies will impact U.S. venture capital investment in China. With a new brand and independent operations, HongShan will face the challenge of competing with China’s homegrown venture capital firms in the new era, where growth in the tech sector will favor deep tech over consumer internet.
As for Peak XV Partners, which under its previous brand name raised $9.2 billion across 13 funds and invested in over 400 startups in the region, it will look to deploy some $2.5 billion it raised last year, the India and SEA unit said.
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For those curious, its fifteen (XV) not ex-ve (XV)
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— Pushpak Kedia (@pushpakkedia) June 6, 2023
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