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Exclusive: Sequoia India eyes record $2.8 billion fund, MD steps down

Sequoia's new fund comes amid falling tech stocks and governance issues at one of its hottest companies, similar to how its last fund came amid the pandemic's first wave.

Mumbai / February 09, 2022 / 01:05 PM IST
Sequoia is planning to raise separate funds for India and Southeast Asia.

Sequoia is planning to raise separate funds for India and Southeast Asia.

Sequoia Capital India has written to its US parent and investors to raise $2.8 billion in funds for Indian and Southeast Asian startups, its largest fund by more than double, signalling that India’s unprecedented startup funding boom may be here to stay, said people aware of the matter, requesting anonymity.

Sequoia also plans to raise separate funds for India and Southeast Asia, something it has not done in the last seven years since it expanded to the region, these people said, in addition to venture and growth funds, a bifurcation it already makes. Further, former Uber Asia Pacific Head Amit Jain, who had joined the firm as managing director in 2019, will step down from his position. 

Jain will be an entrepreneur-in-residence going forward, working on his own venture but getting access to Sequoia’s partners, operators and networks before he steps out, people said

Sequoia declined to comment on the matter, but confirmed Jain's stepping down in a Twitter thread after this story was published

Sequoia’s US partners, led by Roelof Botha will pitch to its investors (Limited Partners) next month- at a common event where investors in Sequoia commit money to all its funds- US, India and China (although China separately raises money from local investors too). Allocations are expected to be finalised by June-July, people said

Sequoia India last raised $1.35 billion in mid-2020 for its seventh fund, when the first wave of the COVID-19 pandemic was still raging, and its unexpected boost for technology companies was not yet visible. Since then, Sequoia has seen food delivery firm Zomato and software firm Freshworks list at eye-popping valuations, seen its holdings in Meesho, Unacademy and Razorpay swell and is expecting Southeast Asia’s GoTo (a merger of GoJek and Tokopedia) and payments firm Pine Labs to list this year. Even after Zomato and Freshworks’ share prices have fallen recently, Sequoia’s stakes in the duo are worth over a billion dollars combined, calculations show.

It also sold stakes worth $700 million in companies such as Indigo Paints, Pine Labs, Vini Cosmetics and Stovekraft last year. Investors in venture firms look for exits/cash returned as a key metric leading up to a new fund, especially when exits have been few and far between for Indian VCs until recently.

After the new fund, Sequoia will manage over $8 billion, more than any other VC fund in India by far.

“Such a large fund not only makes Sequoia much stronger, but it also means other fund managers will find it that much harder to raise money, because LPs have a certain allocation to each market. So if an LP could have allocated $50 million across two Indian funds, that now goes to Sequoia alone,” a partner at a venture fund said, requesting anonymity to not spoil ties with Sequoia.

Sequoia last year promoted five investors- Ashish Agarwal and Harshjit Sethi from the venture team; and Tejeshwi Sharma, Sakshi Chopra and Ishaan Mittal from the growth team- to partnership. The new fund will also reflect these investors’ increased compensations, both in terms of management fees- akin to salary- and carry, or their shares of profits when Sequoia sells its stakes in a company.

After a venture fund’s expenses, the remaining management fee is distributed among partners- another benefit the new partners will get.

However, Sequoia’s ambitions for a record fund also indicate its aggression and confidence in the Indian technology scene. A  top-performing $2.8 billion fund will be expected to return about $10 billion to investors, a size of outcome unheard of so far in India.

Sequoia’s fundraising has also forced other venture firms to raise larger funds, as deals get more expensive, competitive, and talent cost has shot through the roof for most startups. Early Swiggy-investor Elevation Capital is raising a $600 million fund, while Matrix and Accel Partners are eyeing a $500 million and $700 million fund respectively, as per a CapTable report.

Sequoia is however in trouble over one of its newer most successful bets. QR code aggregator BharatPe, once the darling of investors, is now being accused, along with its founder Ashneer Grover, of fraud, embezzlement and poor governance. Sequoia owns 19 percent in $3 billion-valued BharatPe, and managing director Harshjit Sethi is a board member.

Sequoia US last year said it is moving to an evergreen fund, a radical move that does away with investment expiry dates and gives Sequoia the licence to hold on to company stakes for as long as it desires. Sequoia India however will not get this structure in the eighth fund or anytime soon.
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M. Sriram
first published: Feb 9, 2022 06:56 am