US venture capital giant Sequoia plans to split into three businesses – by hiving off its multi-billion-dollar unit in China, while combining its investments in India and Southeast Asia as a third unit, it said on Tuesday.
The move has been undertaken because of economic and geopolitical challenges. A spokesperson said business considerations were the key factor.
The split will see the two new firms adopt their own brands, will occur by March 31, 2024, Sequoia said in a statement signed by managing partner Roelof Botha, China head Neil Shen, and India and Southeast Asia head Shailendra Singh.
The firm’s US and European venture business will remain known as Sequoia Capital.
Fundraising and investment getting more tricky
Economic challenges and geopolitical tensions have made fundraising and investment difficult, and eaten into global venture funds’ returns.
“It has become increasingly complex to run a decentralized global investment business,” Sequoia said in the statement. “This has made using centralized back-office functions more of a hindrance than an advantage.”
Investment in China by global players in particular has slowed as the world’s second-largest economy battles to emerge from Covid pandemic curbs and after it tightened regulatory oversight that stymied growth in the technology and internet sectors.
Sequoia China will retain its current Chinese name and adopt the name HongShan in English, while Sequoia India and Southeast Asia will become Peak XV Partners, the firm said.
Sequoia started to invest in local companies in China, India and Southeast Asia more than 15 years ago, according to the statement.
Sequoia China, founded and led by former entrepreneur and investment banker Shen, has invested in more than 1,200 companies in sectors ranging from technology to healthcare. It manages about $56 billion in assets and raised $9 billion in four funds in 2022.
Its trophy assets include social media giant Bytedance, delivery and local services firm Meituan and online fashion retailer PDD Holdings Inc.
‘Separation will allow flexibility’
US security concerns and tit-for-tat trade restrictions, have recently kept many dollar investors on the sidelines in China.
The Biden administration has been working on new rules restricting US investments in China, and Sequoia has hired a national security firm to advise it on how to mitigate such risks, sources said.
“This separation should help each regional entity to have more flexibility to pursue investment opportunities independently, better cope with the evolving geopolitical environment and local compliance requirements, and also address the portfolio conflicts across entities,” Weiheng Chen, head of Greater China practice at law firm Wilson Sonsini, said.
According to Steven Yu, a Shanghai-based partner at Chinese law firm Global Law Office, many dollar and yuan investors have concerns about investing in Sequoia China under the global brand amid China-US tensions.
The separation will dispel many yuan investors’ concerns, which could make HongShan more attractive to them, Yu said.
“It is an inevitable and very rational choice.”
China-focused venture capital fundraising is heading for its weakest first-half year in at least eight years, Reuters reported last week, citing Preqin data.
Bytedance, in which Sequoia China and US teams were joint investors, has been caught in the China-US crossfire for its ownership of global social media platform TikTok since the Trump era and is still facing close scrutiny in the US. Shen will remain on the board of Bytedance following the separation.
“As each entity’s portfolio has expanded to include companies that are becoming global leaders, we’ve seen growing market confusion due to the shared Sequoia brand as well as portfolio conflicts across entities,” Sequoia said in the statement.
Sequoia India is the country’s biggest venture capital firm, managing $9 billion in assets. Singh and his team raised a $2.5 billion India and Southeast Asia fund last year, their biggest yet.
Some of their biggest investments include food delivery giant Zomato, software firm Freshworks and troubled hotelier Oyo.
The business has grappled with a series of portfolio governance scandals in India since last year.
- Reuters with additional editing by Jim Pollard