sequoia set to change its model, considering remarks from other permanent capital VC’s
- ByStartupStory | November 20, 2021
Sequoia was neither the first United States-based venture capitalist to opt for RIA status, not was it the first venture capitalist that moved to a more permanent-capital model. The combination of becoming an RIA and moving to a capital pool that isn’t beset with artificial return windows may be notable in the United States, but we’ve seen examples of this elsewhere.
What this means to the reader is that, The Exchange reached out to a number of publicly listed venture capital groups from the United Kingdom: Augmentum Fintech, Molten Ventures and Forward Partners. when sequoia previously explored the advantages and costs of VCs moving to listed status, they had a talk with these VC’s.
The Sequoia shift, said the investors, is similar to their own setup in its ability to provide more returns-timing flexibility — possibly allowing for greater return maximization — but different in whom it benefits.
Sequoia partner Roelof Botha spoke about his firm’s model shift on a podcast the other day, giving a somewhat long-form explanation of what it’s up to. he noted that Sequoia tells “founders that the IPO is a milestone” — not the finish line — for a company.
The comment gets at the crux of what Sequoia would like to do with its new model: hold investments longer, requiring the VC to be able to hold stocks over a long time horizon. RIAs are not beholden to venture capital rules requiring them to hold 80% of their assets in private companies, loosely, and no more than 20% in other assets. This means that if a venture capitalist scores a big win with a startup that goes public, there will likely be pressure to liquidate some of the VC’s position as a result.
This can lead to earlier-than-desirable exits in terms of returns, i.e., VCs have to return stock or cash to their LPs before the investment in question has had its full chance to generate profit — and, therefore, returns for both venture fund backers (LPs) and venture fund managers (GPs).
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