Almost a year ago, the investor powerhouse of 50 years capital of the sequoias announced that it had been reorganized around a singular and permanent structure: the Sequoia Capital Fund.
Now thanks to a SEC form filed Friday, we know how much is in the fund: $13.6 billion.
The number represents two things: The value of the shares that Sequoia has invested in its permanent fund from its legacy funds: These are shares in now-public companies that Sequoia backed as startups, including Airbnb, DoorDash, Unity and Snowflake. Some of those shares are owned by Sequoia; some of them are owned by the company’s limited partners, who have agreed to let Sequoia continue to manage the shares on their behalf.
The $13.6 billion also represents new capital commitments that will later be obtained lost call and invested in more traditional funds that sit below Sequoia’s permanent fund, such as a $195 million seed fund that was announced last month. The idea is that, if all goes well, the money will be invested in startups that eventually go public and whose shares end up in the Sequoia Capital Fund in a kind of long, virtuous, and profitable cycle.
Not all shares of portfolio companies are ultimately transferred to the fund. Instead, Sequoia said in a post last year that the permanent fund is for a “selection of our enduring” business.
For example, when Stripe, Sequoia’s holding company, finally goes public, instead of distributing the company’s shares for payment to its investors, Sequoia, assuming it has the support of its limited partners, is more likely to do so. Move Stripe’s stocks of the different vehicles you have. he used to back Stripe in his Sequoia Capital Fund with the expectation that those shares would continue to rise in value.
Sequoia’s strategy, implemented in late fall 2021 even as it was announced last year, has received its fair share of criticism.
One of the company’s limited partners told this publisher last month that his institution would have preferred to manage its distributions, but accepted Sequoia’s long-term strategy to preserve its relationship with the company. Meanwhile, industry watchers have noted that if Sequoia had distributed shares of many of its highest-flying companies in 2021, instead of holding onto them when the market soured last spring, it would have produced much higher returns for their limited partners.
The firm insists that it has no regrets. In a meeting last month, Alfred Lin, a longtime Sequoia partner, said that even if Sequoia could turn the clock back to the end of 2021, it wouldn’t do anything differently. “We are long-term investors,” he said, adding that “the only question we ask ourselves is whether [we] I think these companies will be worth more 10 years from now than they are today, not any short-term period of three months, a month or a year.”
The companies that Sequoia has brought into the Sequoia Fund, Lin said, are “building for the long haul. . . and if you believe in the long term, one of the best advantages [in] tenancy is something called temporary arbitration. You’re just arbitrating people’s nerves because they don’t like to see volatility.”
A Sequoia spokesperson declined to comment for this story, but according to a source close to the firm, limited partners are in lockdown until the end of this year. In fact, presumably to ensure some stability from the start, Sequoia prohibited redemptions from the Sequoia Capital Fund for its first two years, although going forward, if its investors want some liquidity from the Sequoia Capital Fund, they will have two opportunities each year to request this through a combination of shares and cash.
Meanwhile, it’s unclear how much of that $13.6 billion is tied up in shares versus new capital commitments, which go to certain Sequoia subfunds with individual investor approval. However, an even more interesting number will be revealed soon if history is any indication.
Because Sequoia restructured as a registered investment adviser while building its permanent fund, it now must file an annual form called an ADV that specifies investment style, assets under management and key officials.
This form was last filed on March 31 of last year and showed that, as of 12/31/21, Sequoia was managing an impressive $85 billion. Because it must be filed annually, Sequoia will soon share the latest on its assets under management.
