Sequoia split draws mixed reactions from venture capitalists, startup founders

VC firm Sequoia split from its India and China arms last week claiming that the funds were under portfolio conflict.  Sequoia Capital’s China fund, which manages assets worth $56 billion, would operate as a separate entity led by billionaire Neil Shen. The VC fund’s India operations also separated and have rebranded themselves to Peak XV Partners, managing around $ 9.2 billion in assets. This fund will be led by Shailendra Singh.

Indian founders and investors have hailed this development, with some calling it "another step in India’s emergence". 

Some also pointed out that this shows that Indian investement managers are trusted globally. Snapdeal's Kunal Bahl tweeted:

Founder and investor Rajesh Sawhney also commented on this development, he said:

Ritesh Agarwal, OYO's founder, tweeted about this development and said:

On the other hand, Venture Capitalist Chamath Palihapitiya believes that the fund’s exit from India is a mis-step due to India’s growth prospects.

“India is a country growing at six per cent a year. It literally looks like China in 2008-09. I'm not sure why you would let them leave. I think that you would want to attach them to yourself because it makes the US business look better,” he said on the 132 episode of the All-In podcast.

Palihapitiya, who is himself embroiled in lawsuits because of the SPACs he launched in the past few years, also speculated that the main fund might re-enter India with a new team after some time. He said, “Sequoia India, I don't think it has much to talk about. Maybe Roelof Botha (Partner- Sequoia) thought that this team, the current Sequoia India team, is just not very good, so we might as well just cut it out and we can revisit it later. They probably have some number of years of non-compete and then they could come back into the market with a totally new team and that may be easier.”

Since 2020-21, BYJU’S, another Sequoia portfolio company,  has been shrouded in controversies due to governance issues and financial irregularities. 2022 turned out to be one of the toughest years for Sequoia India portfolio companies as two of them, Trell and Zetwerk were under regulatory agencies radar for financial regularities. Moreover, controversy was brewing at another portfolio company, Zilingo, where co-founder Ankiti Bose was ousted from the company. Bose blamed Sequoia India for siding with the rest of the company’s board. 

Furthermore, Sequoia India has also been receiving flak for the governance issues and controversies at BharatPe, another portfolio company. Earlier this year, Go Mechanic, a Sequoia India portfolio company, went bust due to financial irregularities.

Despite this, Peak XV Partners stressed in a statement that the split had noting to do with the governance issues. They said " This had no bearing on this decision and is not relevant to this story. To add, governance in startups is not specific to the portfolio of one VC firm. It’s an ecosystem issue.  There are over 24 other co-investors who are on the captable of the portfolio companies where these unfortunate incidents of fraud have taken place. We are grateful that the entire VC community has acted together in taking decisive and strong action against wilful fraud. "

It is also worth noting that, Sequoia India has invested in over 400 companies till date like Ola, Zomato, Mamaearth, Unacademy, Oyo, Razorpay, Cars24, etc. which means that these controversies are outliers.

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