Sequoia Capital raises $195 million for its newest seed fund

February 25, 2021, 3:39 PM UTC

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Sequoia wants you to know: It’s on the hunt for seed deals.

That was the closing sentence Sequoia Capital Partner Alfred Lin left me at the end of our Zoom conversation earlier this week. 

While its largest bets in the likes of Robinhood and SpaceX have dominated headlines in recent months, the Sand Hill Road investing shop wants to emphasize that yes, it is a seed-investing shop too. The firm raised $195 million for its latest U.S. and Europe-focused seed fund, announced Thursday. A successor to the 2018 vintage Sequoia Scout III, Sequoia Capital U.S./E Fund IV plans to make roughly 10 to 20 investments per year in fledgling startups and founders.

“I wanted to get the word out there that we do make seed investments and that is the primary thing. It’s easy to look at [our recent] large deals and say, ‘Oh, Sequoia is doing these larger deals.’ But let’s not forget, we’ve always been in the seed business,” Lin said. 

Lin, who coleads Sequoia’s early-stage investing practice alongside Roelof Botha, pointed to Sequoia’s investment in Apple, which was a seed investment. 

While Lin says the new fund does not represent a shift in strategy, it comes as the firm itself has gradually ramped up its seed investments too: In 2019 and 2020, Sequoia made more investments in the companies at that stage than in Series A investments. In comparison, Sequoia Partner Mike Vernal noted in a blog post, the number of investments in seed and Series A deals had ramped up to become nearly equal in the years leading up to 2018

It’s no surprise Sequoia wants the word out there that it is an active seed investor. While the dollars are small and the risk is high, seed investments have become some of the firm’s most lucrative bets in recent years. The IPO of home-sharing startup Airbnb offers a timely example: Sequoia began investing in the company at its seed round in 2009, pouring in nearly $270 million total over multiple rounds of funding. That stake is now worth an estimated $16.4 billion. Other Sequoia seed-stage bets including Stripe and Brazilian fintech Nubank also look poised to add to the fund’s successes if their private market valuations hold.

It’s not a phenomenon limited to Sequoia. Many funds are now trying to invest across all stages for a chance at the most competitive of deals. Funds like Coatue, better known in the past for their growth stage investments, have created early stage funds in the hopes of identifying the most promising startups as early as possible. And venture capital firms like FirstMark Capital have more recently moved into special purpose acquisition companies that help businesses go public.

Sequoia is aware that venture capital in general has become an increasingly competitive market, even as the firm’s string of successful exits in companies including Doordash (which Sequoia first invested in at the Series A) in the past year have cemented its status. The firm tries to think as if it is constantly on its toes, says Lin.

“Nobody thinks we’re the underdogs. But inside of Sequoia, we really try to think of ourselves as the underdog,” says Lin, pointing to a company-building crash course the firm recently developed for founders. “We try to constantly think about how the world is evolving.”

With a team that has a history from robotics to health care, Sequoia’s seed deals have been a broad set too. In recent years, it’s led seed investments in the likes of financial tech company Vise and data management platform Aquarium. But many of those investments also remain under wraps: While Sequoia has made seed-stage investments in some 43 companies in 2019 and 2020, about two-thirds of those deals have yet to be revealed.

It can’t go unsaid that Sequoia has faced criticisms along with much of the industry for a lack of diversity within  portfolio companies—a call that has become ever louder since last summer. Lin acknowledges the issue and says the firm is actively looking to address it.

“We need to do better on the diversity front and we have been trying to reach out,” says Lin, adding that to increase the deal flow from underrepresented areas, partnerships are needed to build out those pipelines. “We have a partnership with BLCK VC and another with the Valence network. We have added a number of scouts that are black and brown and of different ethnicities. We are constantly trying to expand our network.”

A BILLION DOLLAR CORPORATE GOVERNANCE DEAL: Insight Partners-backed corporate governance software maker Diligent acquired Galvanize, a Canadian developer of risk and compliance software, for $1 billion. Norwest Venture Partners last invested $50 million in Galvanize. 
Why does this deal matter? Well, CEO of Diligent Brian Stafford sees corporate governance software as the next big thing in enterprise software, rising one day to the level of Salesforce’s success. Read more.

Lucinda Shen
Twitter: @shenlucinda


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