The Sequoia Fund Is Here—What to Know

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Oct. 27 2021, Published 11:08 a.m. ET

VC (venture capital) company Sequoia Capital is creating a mega-fund that encompasses all of its VC assets. This move is revolutionary in the industry and shows a major shift for the nearly 50-year-old company.

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What's Sequoia Capital's newest creation, the Sequoia Fund, and can retail investors get a bite?

Sequoia Fund restructuring its VC roots

Historically, Sequoia Capital has predicted successful companies well. Its expertise lies in the idea stage, and it was an early investor in Google, Apple, and Airbnb. Now, the company is restructuring by rolling up all its investments under one roof: the Sequoia Fund.

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The Sequoia Fund will hold a number of sub-funds, from seed-stage to growth investments. Limited partners will invest with the Sequoia Fund. Their investments will retain annual redemption rights. From their Sequoia Fund investment, limited partners will be able to request allocations to sub-funds. The different fund levels will basically feed each other. Sequoia will profit off a management fee under one percent and a long-term performance fee.

Why is Sequoia changing the standard?

Sequoia, which was founded in 1972, has been operating like nearly every other VC company in its 10-year fund cycle. Most venture funds maintain a decade-long time horizon, after which they return profits to the fund's investors. Now, Sequoia wants to push itself into the future of investing.

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"As chips shrank and software flew to the cloud, venture capital kept operating on the business equivalent of floppy disks," Sequoia partner Roelof Botha wrote in a blog post. Botha added, "Investments will no longer have 'expiration dates.' Our sole focus will be to grow value for our companies and limited partners over the long run."

With no time horizon restrictions, the Sequoia Fund could soar

As Botha describes it, the new open-ended structure doesn't limit how long Sequoia can partner with companies. Sequoia will be able to form long-term growth relationships with brands that allow Sequoia (and its investors) to profit decades into a company's success. Post-public partnerships could change the game for Sequoia and its partners.

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"It also lets us hold public shares long after the IPO and seek the best long-term returns for our limited partners, the majority of which go to nonprofits and endowments," Botha says.

Can retail investors buy into the Sequoia Fund?

Investments in the Sequoia Fund are not for small-time retail investors. There are major financial hurdles to get through before you can reach the level of Sequoia Fund limited partner. The story is different for the Sequoia team. Sequoia Capital employees will own five percent of the Sequoia Fund.

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The VC-based Sequoia Fund is not to be confused with the Sequoia Fund (SEQUX), a mutual fund co-founded by Warren Buffett's stock broker Bill Ruane that fell off its high horse half a decade ago.

As Botha puts it, "For the first time, this structure means Sequoia’s partnerships can be every bit as enduring as the companies we work with." Even if retail investors can't get a bite, Sequoia's new structure could pave the way for more VC revolution. In time, those enduring partnerships could propel stock investments even higher.

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