Original author: Ren Qian
Original source: 36Kr
36Kr has learned exclusively that on June 6, Sequoia published an open letter announcing that it will completely split its three funds in the United States, Europe, China, and India/Southeast Asia, each becoming a completely independent operating entity and using different brands to conduct business. In the future, Sequoia China will continue to use the Chinese brand name "Red Mountain" and the English brand name "HongShan"; Sequoia in the United States and Europe will continue to use "Sequoia Capital", while Sequoia India/Southeast Asia will use the new brand name "Peak XV Partners".
In an open letter, Sequoia stated that "this change will enable each region to better create more value for the founders and LPs they serve," and the reason for making this decision is that "how to manage and operate decentralized global investment businesses is becoming increasingly complex and challenging."
Sequoia wrote in the letter: Establishing local investment teams, focusing on serving local entrepreneurs, and giving priority to meeting local needs are the core elements of Sequoia's success in different regions around the world. To date, Sequoia's business entities and teams in various regions have become leaders in the local market. To continue to succeed in various regions in the future, it needs to further embrace a local-first strategy.
Around 2005, Sequoia Capital, which originated in Silicon Valley, decided to start internationalization and enter more emerging markets. Sequoia China and Sequoia India/Southeast Asia were established successively. For a long time, Sequoia has always adopted a unique decentralized operation model - international brand, no headquarters, and localized operation are its biggest features. Each regional team has the investment decision-making power in most matters.
The core meaning of Sequoia's decision is to further achieve complete independence on the basis of existing localization. As a leader in the global VC field and one of the most successful international institutions, what impact will Sequoia's move have on itself and the entire investment industry?
the student surpasses the master
In 2004, when a Forbes reporter asked Sequoia Capital founder Don Valentine whether he would invest in China, he answered firmly: China is too far away, I still hope that entrepreneurs will be closer to us.
Soon, Valentine's words proved to be just smoke and mirrors. A year later, Mike Moritz and Doug Leone, then managing partners of Sequoia Capital, met with Ctrip co-founder Shen Nanpeng and reached a cooperation, and Sequoia China came into being.
From the 40-mile area surrounding Silicon Valley to the 14,000-kilometer Pacific Ocean, Sequoia said in an open letter that this is because it saw entrepreneurs who created a new generation of industry-leading companies emerge all over the world 18 years ago.
Sequoia China's brilliant performance proves the success of this localization path. More than 1,200 invested companies, more than 130 listed companies, more than 100 unicorns, and early capture of new economic giants such as Meituan, Pinduoduo, and ByteDance are the answers Sequoia China has handed in in 18 years.
As a successful entrepreneur, Shen Nanpeng has become one of the most high-profile top investors in the world during his more than ten years leading Sequoia China. He has been named to Forbes' list of the world's best venture capitalists 12 times, winning the title 4 times, including 3 consecutive times.
In a sense, Sequoia China, which has surpassed its predecessor, has come from behind and surpassed its "cousin" across the ocean in many aspects.
According to public data, the fund size managed by Sequoia China has exceeded RMB 300 billion. It is the only institution in Sequoia's three major markets that has established full-chain, full-stage and full-cycle investment capabilities. Moreover, Sequoia China's investment directions are more extensive and diverse. In addition to the technology industry, it also includes medical health and traditional consumption, which are less involved in the other two regions. In addition, Sequoia China has also established a new infrastructure fund to invest in the infrastructure of China's new economic industries, and has begun to develop mergers and acquisitions in recent years - these are all businesses unique to Sequoia China.
A detailed account of Sequoia's investment cases in recent years shows that simple regional divisions are no longer the investment boundaries of the three-region funds. For example, Sequoia China has invested in some biotechnology and healthcare companies headquartered overseas, as well as European fashion consumer brands, and start-ups in Japan, South Korea, and Australia. The investment targets have also long expanded from local Chinese entrepreneurs to outstanding Chinese entrepreneurs around the world.
As Sequoia becomes a leader in the venture capital market in various regions, the leading companies they invest in will inevitably compete with each other in the international market. For example, in the field of design software, there are Blue Lake, invested by Sequoia China, and Figma, invested by Sequoia America. In the field of financial technology, there are Airwallex, invested by Sequoia China, and Sunrate, invested by Sequoia India, etc. This brings negative value to a unified "Sequoia" brand.
In addition, Sequoia America has embarked on a "mercury retrograde" journey that is visible to the naked eye in the past two years. First, after Roelof Botha took over the top management of Sequoia, he launched the evergreen "Sequoia Fund" at the peak of the bull market in October 2021. However, as the U.S. stock market suffered heavy losses, the performance of this pioneering VC fund was not satisfactory; Furthermore, FTX, the cryptocurrency and derivatives exchange in which Sequoia America held a heavy position, collapsed, and its decision to invest in Twitter was also controversial. It may face floating losses, causing the value of Sequoia America's assets to shrink significantly; in March this year, Silicon Valley Bank suddenly collapsed within 48 hours of the run, and Sequoia America, as a major customer, experienced a special life-and-death test. The combination of these factors has caused this veteran VC with "fire in the backyard" to encounter some crisis of trust and forced it to focus on the domestic market in the United States.
The growing differences in investment strategies, industry directions and member company structures will inevitably lead to significant differentiation in investment strategies across Sequoia. In this case, the original structure has become unsustainable. Sequoia may have been keenly aware that only by adapting to local conditions and being flexible and independent can it further maintain its vitality and advantages in various markets, which is more important than maintaining a "big umbrella" global unified brand. "Let each of them become better after the spin-off" may be Sequoia's ultimate thinking in making this decision.
18 years ago, when the two managing partners Mike Moritz and Doug Leone decided to let Sequoia "go overseas", today's results may be somewhat unexpected. But just as venture capitalists need to constantly adapt to changes, in order to maintain a competitive advantage in the new situation, it is reasonable for each to be independent.
The end point of internationalization is localization
Sequoia is not the only legendary institution on the Silicon Valley Sand Hill Road where venture capital firms gather. But if we look at the world, Sequoia has a unique style in internationalizing investment institutions, which is unmatched to date.
Sequoia's internationalization path is different from many Silicon Valley funds of the same period. It abandons the traditional idea of managing global business with the United States as the headquarters, and is committed to establishing teams in different regions that are rooted in the local area and are familiar with the local market and ecology. In the early stages of development, Sequoia shared best practices with regional teams and helped lay a solid foundation; each region has independent ownership and investment decision-making power, but some back-end functions and brands are managed globally in a centralized manner.
In recent years, as Sequoia's presence in each market has continued to grow and even become an industry leader, some back-end functions, such as finance, legal affairs, and IT, can no longer meet local needs well if they continue to maintain unified global management, affecting their respective operating efficiency.
As early as more than a year ago, before Doug Leone, the last leader of Sequoia Capital, was about to announce his retirement, there were rumors that Sequoia's regions would "go their separate ways." Today, it seems that the separation is not groundless, but the three parties are just waiting for the right time.
In July last year, Sequoia China announced the completion of fundraising for four new funds, totaling US$9 billion. This fundraising against the trend is not only an additional support for Sequoia China by international investors, but also a shot in the arm for China's technological innovation and entrepreneurial ecology, and it was completed completely independently by the Sequoia China team.
The most successful internationalization is the most thorough localization - Sequoia provides another possibility for this globalization strategy.
HongShan's New Journey
In the official announcement released by Sequoia, Sequoia China will use the new brand name "HongShan". Today, Sequoia China has become the "Chinese Sequoia" in the true sense.
The meaning behind this is self-evident: Sequoia China can continue to take advantage of its own and its invested companies’ internationalization demands, adopt more flexible strategies, serve more diverse entrepreneurs and LPs, and face a broader market, so as to create greater value. In particular, as Sequoia China’s reach can reach further in the future, this will be good news for high-potential Chinese entrepreneurs around the world, whether they return to China to start a business or go global.
Today, Sequoia China has taken a milestone step, and a new "HongShan" with global potential has ushered in the Day 1 moment. How will it open up its own development path and write new history on a bigger stage? Let's wait and see.