Sequoia's three-way split brings abrupt end to global strategy

Neil Shen, founding and managing partner of Sequoia China
(Peter Parks/Getty Images)
Sequoia Capital, one of the largest and most active global VC firms, is splitting its US and Europe, China, and India units into three separate entities.

The Silicon Valley firm told its LPs in a letter that the split is a result of the growing difficulties associated with running a firm that backs leading tech companies around the world. The separation comes at a time of rising geopolitical tensions between China and the US, particularly around sensitive technology like semiconductors and AI.

"It has become increasingly complex to run a decentralized global investment business," the leaders of the three businesses wrote in the letter.

The Biden administration is expected to start cracking down on US investment into certain China-based technology companies, including those developing semiconductors, according to recent reporting by The Wall Street Journal. Sequoia China raised $9 billion last year despite a downturn in VC investment spurred by the Chinese government's tech crackdown.

Sequoia's Chinese and Indian subsidiaries have long acted independently from the US arm, with their own leadership teams, fundraising efforts and investment strategies. When Roelof Botha succeeded Doug Leone as head of Sequoia last year, the firm underscored that Neil Shen would continue as head of Sequoia China. However, all geographies shared back-office functions such as finance, accounting and IT systems as well as profits.

The firm has been considering separating the three businesses over the last several years, Shen told the Financial Times. Sequoia China and India were not a part of the firm's new master fund structure announced in late 2021.

The letter also cited problems with "confusion due to the shared Sequoia brand as well as portfolio conflicts across entities."

Sequoia's US business invested in ByteDance, the parent of TikTok, years after Sequoia China initially invested in the Chinese social media company. The future of TikTok in the US is uncertain, as the American government has threatened to ban it for years.

The firm has faced countless other challenges. Sequoia was a major backer of crypto exchange FTX, whose collapse and fraudulent activity reportedly prompted an apology letter to LPs. And a historically fast rise in interest rates greatly devalued the firm's portfolio of public companies shortly after it launched a novel strategy to hold on to those bets.

Following the split, expected to be completed by March 2024, the three businesses will not share back-office functions or brand names. Sequoia China will be called HongShan and continue to be run by Shen. Sequoia India will rebrand as Peak XV Partners under the leadership of Shailendra Singh.

The remaining businesses, which include Sequoia US/Europe, long-term capital fund Sequoia Heritage and crossover investment firm Global Equities, will be managed by Botha.

Related read: H2 2022 Greater China Venture Report

This article originally appeared on PitchBook News