Sequoia Capital has recently opened two new seed- and early-stage investment vehicles totaling $950 million. This move is further indication of its bid for differentiation in a highly competitive venture capital venture. The new seed and venture funds are the firm’s first new vehicles since 2020, when it formed. These funds will dwarf the sizes of those started six or seven years ago. Sequoia wouldn’t be taking this step if it weren’t looking to get ahead of a crowded market. Just in the United States, there’s about 3,000 venture firms currently active, a three-fold increase since Roelof Botha joined the firm.
In the last year, Sequoia has taken a more active role in cultivating early-stage companies, reaching for an impressive 20 seed-stage investments. Importantly, nine of these investments were made at the companies’ founding times. The firm’s investment strategy focuses on collaboration. All partners need to have a say in important decisions, which can lead to extended discussion times. Botha remembers one recent case where he spent six months just making the case for one growth investment to be made within the partnership.
“The challenge you have inside the company for the founders and the team, you feel as though you’re on this trajectory, and then you end up being successful, but it’s not quite as good as you hoped at one point,” Botha stated, reflecting on the pressures faced by startups in today’s volatile environment.
Sequoia’s decision-making process reinforces an egalitarian approach where each partner’s vote holds equal weight, regardless of their tenure or title. This framework guarantees that a wide range of perspectives are heard. Each of the Mondays in-between our partner convenings, we start with an anonymous poll to get a sense of partners’ first impressions on still-draft investment materials.
In a market defined by constant, seismic shifts, Sequoia has seen the whipsaw challenge of episodic company valuations like nobody else. Just the other day, the firm had a public debrief about one such portfolio company on their website. While its valuation increased from $150 million to $6 billion in 12 months during the height of 2021, it subsequently plummeted. Such experiences have highlighted the VC investing clearly dangerous volatile risk.
In the last 20-25 years, 50% of the time we’ve made a seed or venture investment, we fail to fully recover capital, which is humbling,” Botha remarked. This stat exposes the brutal reality that venture capitalists face. Second, it highlights the volatility and unpredictability of the startup ecosystem.
Despite these challenges, Botha is hopeful about the future of entrepreneurship. He commented on the importance of building companies over pursuing immediate high valuations, stating, “You’re probably better off building because your company will be worth so much more 12 months from now.” This view more clearly frames Sequoia’s focus on investing in long-term sustainable growth over giving in to the short-term success-at-all-costs pressure.
Botha similarly warned against the temptation of seeing more money as a cure all for building great companies. “Throwing more money into Silicon Valley doesn’t yield more great companies,” he explained. He argues that too much capital can overwhelm the path for breakout firms to succeed, making the venture capital ecosystem more challenging.
The recent surge of capital entering the venture space starts to raise eyebrows and feed concerns among industry experts. Is this growth driving meaningful innovation, or merely entering an increasingly saturated market? “If you take out the top 20 or so venture firms out of the industry’s results, we [as an industry] actually underperformed investing in an index fund,” Botha asserted, indicating that a selective approach may yield better outcomes for investors.
Sequoia’s strategy executes on the principle of quality over quantity in its investments, which will be crucial in a time when market conditions are unpredictable at best. Botha’s wisdom serves as Botha’s North Star for guiding Sequoia. More importantly, they provide a guiding light to founders to help them chart their path when the future is uncertain.
There’s literally nothing more exciting than working alongside founders from day one, he stated, reaffirming Sequoia’s commitment to supporting entrepreneurs from their inception.
Sequoia Capital is starting a new story with its new investment funds. In the end, it is committed to encouraging innovation while taking a careful approach in a rapidly evolving marketplace. Given the highly nuanced relationship between capital and healthy company growth, it is no surprise the firm’s balanced approach to the issue reflects its sensibility.
