Exclusive: Sequoia marks up funds, defying VC rout

Venture capital may be going through the deepest slump since the global financial crisis, but Sequoia, one of the industry's most prominent firms, is evidently weathering the downturn better than many of its peers.

That's according to a PitchBook analysis of financial statements from the University of California Regents, a limited partner in about two dozen Sequoia funds with vintage years 2018 and later.

While many large VC firms have reduced the values of their portfolios over the past year, Sequoia has marked up 15 of its funds by an average of 9.2%, according to UC Regents' alternative investments report for the fiscal year ending June 30. Sequoia has also written down the value of four of its funds by an average of 6.9% over the same 12-month period, the LP's statements show. Sequoia declined to comment.

Sequoia's returns stand in stark contrast to industry-wide performance. IRR across US-based VC funds was -16.8% for the year ended Q1, according to the latest PitchBook-NVCA Venture Monitor.

Large markdowns in UC Regents' portfolio include three Khosla Ventures funds that lost an average of 16.6% of their value, a 2012 Canaan fund written down by 21%, a four-year-old Iconiq fund that gave up 25.6% of its worth and seven GGV vehicles that lost an average of 4.2%.  
Most VCs, especially those with large funds, were forced to take significant markdowns of many of their portfolio companies over the last year, according to investors and valuation consultants. Ian Coffman, director with the portfolio valuation and venture fund advisory group at Houlihan Lokey, estimates that more than 80% of startups were written down from 10% to 60% since the downturn began last year.

Auditors pushed VCs to value their investments in line with comparable public companies that tanked in 2022 amid rising interest rates. While newer and smaller firms may have been reluctant to adjust their paper values, brand-name, multistage investors generally have a "very rigorous approach to valuations," said David Larsen, managing director at Kroll, a firm that helps LPs and GPs value assets.

Sequoia has encountered turbulence in recent years as it navigates a new financial structure, leadership changes and investment missteps.

In late 2021, the firm changed its structure to flow up to an open-ended portfolio of public companies. This master fund was created at the top of the market, which means that LPs who agreed to leave public companies under the firm's management didn't have a chance to sell those stocks at peak prices. In April 2022, the firm named Roelof Botha as its new global leader.

In November 2022, Sequoia's investment in the crypto exchange FTX imploded. The firm told its LPs in a letter that it wrote down the $150 million investment in FTX to zero, but the loss was offset by about $7.5 billion in realized and unrealized gains in Sequoia Capital Global Growth Fund III, the vehicle that invested in the exchange. The $8.17 billion vehicle was written up by 5.2% over the 12 months that ended June 30 and has an IRR of 21.8%, according to UC Regents statements.

Earlier this summer, Sequoia announced its plans to split its US and Europe, China and India units into three separate entities. The separation is expected to be completed by March 2024. 

UC Regents statements show that most Sequoia China and India funds, now renamed HongShan and Peak XV Partners, were marked up during the period. The two exceptions are Sequoia Capital GGF III China Annex and Sequoia Capital GGF III India Annex, which were written down by 4.3% and 9.9%, respectively.

Sequoia also decreased the value of its 2021 vintage $1.7 billion ninth US Growth fund by 7.4%, but the vehicle has produced an IRR of 7%, UC Regents statements show.

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This article originally appeared on PitchBook News