Sequoia is being split into three units: Sequoia Capital in the US and Europe, Peak XY Partners in India and Southeast Asia, and HongShan in China, as the popular venture firm tries to assess the complexity of managing a decentralized operation.
The split, which will take effect from March next year, comes amid growing geopolitical tensions between the world’s two largest economies, China and the United States. The India and Southeast Asia unit has also faced some optics and governance issues in its portfolio companies.
Sequoia downplayed why it’s splitting up. “It’s becoming increasingly difficult to run a decentralized global investment business. For example, each business has evolved to meet the opportunities of its markets across a wide range of industries,” the company said in a note co-authored by regional heads Rulof Botha, Neil Shen and Shailendra Singh.
“This makes the use of centralized back-office functions more of a hindrance than an advantage. Additionally, as each entity’s portfolio has expanded to include companies that are becoming global leaders, we have seen increasing market confusion regarding Sequoia’s overall brand as well as portfolio controversy.
Sequoia’s decision to reorganize its international branches into autonomous units, however, could prompt its rival venture firms to follow suit in the coming year.
The surprise announcement follows an increasingly difficult period for US venture capital funds investing in China. The Biden administration is working on plans to limit the flow of US dollars to China, where Sequoia has played a major role in powering the country’s consumer internet sector for two decades.
The strategy is seen as hindering China from developing advanced technologies such as artificial intelligence, quantum computing and semiconductors. Sequoia Capital China had already slowed down significantly in China. According to Crunchbase, the company raised a whopping $9 billion last July, but completed just 62 deals between Q3 2022 and Q2 2023, from Q3 2021 to Q2 2022.
Sequoia Capital China is likely taking a more cautious approach to investing in China amid the changing political and economic landscape. There are other factors slowing down its activity. Most US dollar-denominated venture capital funds have scaled back their investments since the country began a sweeping regulatory crackdown on its consumer internet industry nearly three years ago. VCs around the world are also more conservative amid the global economic slowdown.
It remains to be seen how the Biden administration’s policies will affect US venture capital investment in China. With a new brand and independent operations, Hongshan will face the challenge of competing with China’s venture capital firms in a new era where the growth of the technology sector will favor deep technology rather than consumer internet.
As for Peak XV Partners, which under its former name has raised $9.2 billion from 13 funds and has invested in more than 400 startups in the region, it will look to deploy about $2.5 billion it raised last year. , the India and SEA division said.