Nearly a 12 months in the past to the day, the 50-year-old investing powerhouse Sequoia Capital introduced that it had reorganized itself round a singular, everlasting construction: The Sequoia Capital Fund.
Now, due to an SEC kind filed on Friday, we all know how a lot is sitting within the fund: $13.6 billion.
The quantity represents two issues: the worth of the inventory that Sequoia has rolled into its everlasting fund from its legacy funds — these are shares in now-public corporations that Sequoia backed as startups, together with Airbnb, DoorDash, Unity, and Snowflake. A few of these shares are owned by Sequoia; a few of them are owned by the agency’s restricted companions, who’ve agreed to let Sequoia proceed to handle the shares on their behalf.
The $13.6 billion additionally represents new capital commitments that can later get referred to as down and invested in additional conventional funds that sit beneath Sequoia’s everlasting fund, like a $195 million seed fund that was introduced final month. The thought is that if all goes nicely, the cash will probably be invested in startups that ultimately go public and whose shares wind up in the Sequoia Capital Fund in a form of lengthy, virtuous, profitable circle.
Not each portfolio firm’s shares are finally swept into the fund. Sequoia stated as an alternative in a put up final 12 months the everlasting fund is for a “choice of our enduring” companies.
When Sequoia’s portfolio firm Stripe ultimately goes public, for instance, quite than distribute the fee firm’s shares to its buyers, Sequoia — assuming it has the help of its restricted companions — is extra more likely to transfer Stripe’s shares from the various completely different autos that it has used to again Stripe into its Sequoia Capital Fund with the expectation that these shares will proceed to rise in worth.
Sequoia’s technique — applied in late fall of 2021, even whereas introduced final 12 months — has acquired its fair proportion of criticism.
One of many agency’s restricted companions informed this editor final month that his establishment would have most popular to handle out its distributions however agreed to Sequoia’s long-hold technique with a view to protect its relationship with the agency. In the meantime, business watchers have famous that had Sequoia distributed shares of lots of its highest-flying corporations in 2021, quite than maintain them because the market soured final spring, it could have produced vastly larger returns for its restricted companions.
The agency insists it has no regrets. In a sit-down final month, longtime Sequoia associate Alfred Lin stated that even when Sequoia may rewind the clock to late 2021, it wouldn’t do something in another way. “We’re buyers for the long term,” he stated, including that the “solely query we ask is whether or not [we] assume these corporations are going to be price extra 10 years from now than in the present day — not any brief time period three-month, one-month, or one-year interval.”
The businesses that Sequoia has tucked into Sequoia Fund, Lin stated, are “constructing for the long term . . . and In the event you consider in the long term, the most effective benefits [in] holding is one thing referred to as temporal arbitrage. You’re simply arbitraging folks’s nerves as a result of they don’t like seeing volatility.”
A Sequoia spokesperson declined to remark for this story, however in response to a supply near the agency, restricted companions are locked up till the top of this 12 months. Certainly, presumably to make sure some stability at its outset, Sequoia banned redemptions from the Sequoia Capital Fund for its first two years, although going ahead, if its buyers need some liquidity from Sequoia Capital Fund, they’ll have two probabilities every year to ask for this through some mixture of shares and money.
Within the meantime, it’s not clear how a lot of that $13.6 billion is tied up in shares versus comes from new capital commitments, which get earmarked for sure of Sequoia’s sub funds with every buyers’ blessing. But an much more fascinating quantity will quickly be revealed if historical past is any indication.
As a result of Sequoia restructured as a registered funding advisor because it was creating its everlasting fund, it should now file a yearly kind referred to as an ADV that specifies funding fashion, property beneath administration, and key officers.
This kind was final filed on March 31 of final 12 months and confirmed that, as of 12/31/21, Sequoia was managing a shocking $85 billion. As a result of it should be filed yearly, Sequoia will probably be sharing the newest on its property beneath administration quickly.