Almost a year ago to the day, the 50-year-old investing powerhouse Sequoia Capital announced that it had reorganized itself around a singular, permanent structure: The Sequoia Capital Fund.
Now, thanks to an SEC form filed on Friday, we know how much is sitting in the fund: $13.6 billion.
The number represents two things: the value of the stock that Sequoia has rolled into 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 firm’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 get called down and invested in more traditional funds that sit below Sequoia’s permanent fund, like 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 wind up in the Sequoia Capital Fund in a kind of long, virtuous, lucrative circle.
Not every portfolio company’s shares are ultimately swept into the fund. Sequoia said instead in a post last year the permanent fund is for a “selection of our enduring” businesses.
When Sequoia’s portfolio company Stripe eventually goes public, for example, rather than distribute the payment company’s shares to its investors, Sequoia — assuming it has the support of its limited partners — is more likely to move Stripe’s shares from the many different vehicles that it has used to back Stripe into its Sequoia Capital Fund with the expectation that those shares will continue to rise in value.
Sequoia’s strategy — implemented in late fall of 2021, even while announced last year — has received its fair share of criticism.
One of the firm’s limited partners told this editor last month that his institution would have preferred to manage out its distributions but agreed to Sequoia’s long-hold strategy in order to preserve its relationship with the firm. Meanwhile, industry watchers have noted that had Sequoia distributed shares of many of its highest-flying companies in 2021, rather than hold them as the market soured last spring, it would have produced vastly greater returns for its limited partners.
The firm insists it has no regrets. In a sit-down last month, longtime Sequoia partner Alfred Lin said that even if Sequoia could rewind the clock to late 2021, it wouldn’t do anything differently. “We’re investors for the long run,” he said, adding that the “only question we ask is whether [we] think these companies are going to be worth more 10 years from now than today — not any short term three-month, one-month, or one-year period.”
The companies that Sequoia has tucked into Sequoia Fund, Lin said, are “building for the long run . . . and If you believe in the long run, one of the best advantages [in] holding is something called temporal arbitrage. You’re just arbitraging people’s nerves because they don’t like seeing volatility.”
A Sequoia spokesperson declined to comment for this story, but according to a source close to the firm, limited partners are locked up until the end of this year. Indeed, presumably to ensure some stability at its outset, Sequoia banned redemptions from the Sequoia Capital Fund for its first two years, though going forward, if its investors want some liquidity from Sequoia Capital Fund, they will have two chances each year to ask for this via some combination of shares and cash.
In the meantime, it’s not clear how much of that $13.6 billion is tied up in shares versus comes from new capital commitments, which get earmarked for certain of Sequoia’s sub funds with each investors’ blessing. Yet an even more interesting number will soon be revealed if history is any indication.
Because Sequoia restructured as a registered investment advisor as it was creating its permanent fund, it must now file a yearly form called an ADV that specifies investment style, assets under management, and key officers.
This form was last filed on March 31 of last year and showed that, as of 12/31/21, Sequoia was managing a stunning $85 billion. Because it must be filed annually, Sequoia will be sharing the latest on its assets under management soon.