[HN Gopher] The Sequoia Fund: Patient capital for building endur...
___________________________________________________________________
The Sequoia Fund: Patient capital for building enduring companies
Author : Zhenya
Score : 148 points
Date : 2021-10-26 14:35 UTC (8 hours ago)
(HTM) web link (medium.com)
(TXT) w3m dump (medium.com)
| boringg wrote:
| "Patience and long-term partnerships generate exceptional
| results. For Sequoia, the 10-year fund cycle has become
| obsolete."
|
| Bold Statement.
| joshu wrote:
| as an angel i have invested in a bunch of companies that later
| IPO'd. they then continued to significantly appreciate.
|
| the downside is that the time horizon is very long (ie one that i
| invested in 2006 IPOd in 2015 and continues to rise) so the
| absolute return is huge but the IRR drops. so people who
| benchmark everything by IRR will not see much improvement, even
| though the TVPI etc are still awesome.
| mbesto wrote:
| Appreciate the insight. Curious to get your thought here...
|
| I do know that some investors look at TVPI and generally
| understand why, but isn't IRR the only thing that _really_
| matters? Philosophically speaking, you can 't change the time
| variable - we're on a continuum - so at the end of the day the
| only thing that you are able to compare is how well a single
| dollar performs over time? I understand this doesn't take into
| consideration liquidity, but TVPI doesn't really either.
| cratermoon wrote:
| "I think the issue begins in our high schools, and where women
| particularly in America and also in Europe, tend to elect not to
| study the sciences when they're 11 or 12. So suddenly the hiring
| pool is much smaller."
|
| https://www.vox.com/2015/12/3/11621140/venerated-vc-michael-...
| thesausageking wrote:
| a16z, Accel, and now Sequoia have become hedge funds. And Tiger
| and other hedge funds have started doing VC investments.
| Interesting bundling and unbundling of the industry.
| eldavido wrote:
| "Venture Capitalists are just hedge fund managers who can quote
| the Tibetan Book Of The Dead." -- Taylor Mason, Billions,
| Season 3: Flaw in the Death Star.
| eigthbits wrote:
| Exactly. "This is a fundamental disruption to the venture
| capital model." should be read as "We are now a hedge fund like
| Tiger, Coatue, et al."
| CalChris wrote:
| I don't think what a16z is doing, a crypto hedge fund, is
| similar to what Sequoia is doing here with its Sequoia Fund, a
| mutual fund of post-IPO portfolio companies.
|
| Indeed, I don't see this as a hedge fund, _a limited
| partnership of investors that uses high risk methods, such as
| investing with borrowed money, in hopes of realizing large
| capital gains_. Generally hedge funds are private investments.
| Sequoia Fund is _an open-ended liquid portfolio made up of
| public positions in a selection of our enduring companies._
| They even calls themselves a mutual fund.
| Sequoia Fund is a mutual fund that has been advised by Ruane,
| Cunniff & Goldfarb L.P. since its inception on July 15, 1970.
|
| Mutual, not hedge.
| govg wrote:
| Hedge funds aren't really private investments, you're
| probably thinking of Private Equity firms. Hedge funds more
| often than not invest in the public markets and hold large
| positions, the difference between a mutual fund and a hedge
| fund is more regulatory and legal than investment process.
| mbesto wrote:
| AFAIK hedge funds are basically anything you want them to
| be. You could be hedging public equities, shorting them
| all, going long on them all, or investing in crypto. I
| could be wrong but its basically a catch-all term now.
| caminante wrote:
| The parent is responding to the grandparent comment
|
| _> Generally hedge funds are private investments._
|
| I take your point that HFs come in many flavors. And,
| "private investments" is ambiguous.
|
| Though, in "general", the parent is right to say the
| claim (above) is not accurate. I think of HFs as
| "generally" playing with securitized, public assets,
| regardless of investment mandate.
| dbs wrote:
| Not the same sequoia
|
| Sequoiacap.com
|
| Sequoiafund.com
| CalChris wrote:
| Same Sequoia. The article doesn't really make it clear
| (well, the green color scheme does) but Sequoia Fund is a
| part of Sequoia. The author is a VC for Sequoia
|
| https://www.sequoiacap.com/people/roelof-botha/
|
| Maybe this is clearer.
|
| https://www.axios.com/sequoia-capital-fund-venture-
| capital-m...
| mbesto wrote:
| Incorrect. Those are literally two different entities
| with no relationship whatsoever.
|
| https://www.sequoiafund.com/home -> is run by people who
| have nothing to do with Sequouia Venture Capital or the
| newly minted "The Sequoia Fund". As you can see this is a
| mutual fund that invests in public equities:
| https://www.sequoiafund.com/Performance
|
| EDIT: here it is:
| https://fundresearch.fidelity.com/mutual-
| funds/summary/81741...
| spullara wrote:
| This may end up being a trademark dispute :)
| kornish wrote:
| Good op-ed in The Information about this exact topic:
| https://www.theinformation.com/articles/the-end-of-venture-c...
| streetcat1 wrote:
| Right. the VC arbitrage is disappearing. However the gate
| keepers are still there. This just impose search and
| transaction cost on founders with no benefits to the company .
| I envision the next steps to be:
|
| 1. Startup ETF for pre exit companies. 2. Stock exchange for
| startups.
| runnerup wrote:
| I'm sure people would want to have an ETF for pre exit
| companies in the same way that they'd like to have a NYSE
| without SEC oversight.
|
| I'm pretty sure there are rules which involve "looks like a
| duck, quacks like a duck, legally it's now a duck" which make
| it hard to trade pre-exit companies with any kind of useful
| liquidity.
| boringg wrote:
| a16z hedge fund? Please explain.
| qeternity wrote:
| Basically a crypto hedge fund.
| thesausageking wrote:
| a16z restructured themselves into an RIA and is no longer a
| VC fund according to the SEC. By giving up the VC fund
| exemption, they have to follow the regulatory rules for hedge
| funds including background checks for employees, many more
| disclosures, 13F filings, etc.
|
| They did it because the change lets them to invest in public
| company stock, buy secondaries, buy crypto tokens, etc.
| rdli wrote:
| With the amount of capital available, no question that many
| companies that would have IPO'd years ago are electing to stay
| private (hello, Stripe!).
|
| The cynic in me says: this is great marketing, because the best
| Sequoia fund is the early stage fund (always oversubscribed) and
| now as an LP you can't invest in just the early stage fund. (But
| the reality is I bet they forced early stage fund LPs to invest
| in their growth vehicles anyway, so there is no material change
| other than marketing. Which is very good.)
| flyinglizard wrote:
| The opposite is also true, many startups have come out of the
| woodworks during the COVID market craze to go public because
| the money is there (SPACs are the extreme example).
| someguydave wrote:
| I think the political writing on the wall is that the legal
| barriers are going to be lowered for entering the public
| market. So Sequoia and others are going to need to market
| themselves to founders as an alternative to going public.
| letmeinhere wrote:
| first thoughts:
|
| pro: may remove some pressure to follow growth-at-all-costs
| business strategy
|
| con: may cause employees to have to wait even longer to ever
| realize any gains from stock options
| TuringNYC wrote:
| pro: might be a good signal to potential employees that the
| private-illiquid-stock timeframe will be long (not a quick
| flip) and best to discount face value of stock
| dcolkitt wrote:
| Having a permanent capital structure may allow employees with
| equity in portfolio companies to tender their shares for shares
| in the Sequoia Fund itself. Presumably those would be much more
| liquid.
| svnt wrote:
| I have never observed this level of optimism in the wild
| before.
| caust1c wrote:
| I think the SEC would have something to say about this unless
| the exercised options made the individual an accredited
| investor ipso facto.
|
| Edit: But maybe that doesn't apply to selling shares on the
| private market, only buying? Also if it's written into the
| initial option grant, perhaps that's a way out too.
| someguydave wrote:
| I don't think you need to be an accredited investor to
| sell, only buy.
| pdog wrote:
| Good luck trying to get Sequoia to accept common shares from
| employees in exchange for diluting their own capital, when
| they already get preferred shares in a different class
| through their investments in individual companies.
| [deleted]
| dcolkitt wrote:
| When Sequoia expands their AUM they make more money because
| they have more assets to collect fees on. This mechanism
| expands their AUM every time they tender shares.
|
| Sure common stock has a discount to preferred stock, but
| it's not an infinite discount, and it's mostly applicable
| in the pessimistic scenario. If employees are exercising
| their options, it's usually because the portfolio company
| in question has performed well.
|
| Sequoia would most likely be happy to acquire shares in
| those companies at reasonable discounts to preferred, which
| would make both parties happy. With a permanent capital
| structure, the most logical thing to do is for them to keep
| levering up positions in their winning positions.
| someguydave wrote:
| Plus, if those employees get Fund shares and sell them
| back to Sequoia for cash, that opens up room for more
| investors to enter the Fund without any dilution. I can
| imagine some closed growth funds might have a hard time
| finding sellers.
| astatine wrote:
| Has all the makings of a great move. This should hopefully, let
| founders focus on the business instead of devoting all efforts
| towards securing an exit for the investors as the fund nears
| its cycle end. Particularly, if an investment is made later in
| the cycle.
| mbesto wrote:
| The recent (circa ~15 years) stock market boom has driven this.
| Their LPs are sitting their wondering "ya sure you got us a 100x
| return on investing in Facebook in 2006, but if you woulda kept
| your position when it IPO'd, it woulda been a 500x position".
|
| The market is driving this decision - there really isn't anything
| magical or bold about this.
| [deleted]
| vmception wrote:
| Anybody in a VC Private Equity fund: can you tell me how capital
| calls work?
|
| In a hedge fund, limited partners just gives the fund a certain
| amount of capital and you see what happens.
|
| The way capital calls have been described to me is that limited
| partners just say they have a certain amount of capital
| available, and at any time the VC PE fund just requests/demands
| it from your bank account? Which seems a little odd and
| inconvenient to me.
| joshu wrote:
| yes, they send you a note and you wire the money in. eventually
| they start doing distributions (hopefully). it gets hectic.
| mbesto wrote:
| > The way capital calls have been described to me is that
| limited partners just say they have a certain amount of capital
| available, and at any time the VC PE fund just requests/demands
| it from your bank account? Which seems a little odd and
| inconvenient to me.
|
| This is essentially how it works. The alternative is the
| following:
|
| Let's say you raise a $1B fund and everyone gives you cash up
| front. That $1B is effectively going down in the value if it
| just sits there in cash.
| vmception wrote:
| I like the hedge fund + side pocket model way more then
|
| About time that these big VCs are catching up to it
|
| The side pocket is a private equity fund, and limited
| partners can always create additional subscriptions if they
| want to invest more into the main fund as long as they meet
| the minimums
| mbesto wrote:
| I don't disagree but this is really only possible with
| sources of cheap capital. Rolling funds are not easy to
| maintain and very risky on the GP side of things.
| vmception wrote:
| Restrictions and limitations on redemptions from the
| liquid fund already solve this.
|
| And money in the side pocket can be kept forever in long
| term positions. Even to an LP that previously did a full
| redemption, the liquidity events from the side pocket can
| result in an infinitely long redemption.
| eecc wrote:
| So basically the Michael Dell equivalent for VC.
|
| Might make sense
| boringg wrote:
| Whats the MD model?
| [deleted]
| Vox_Leone wrote:
| Any initiative capable of making projects viable is always
| welcome. I'm working on a solution for a 3d image display in
| space, based entirely on electronics [electron scattering] and it
| hasn't been easy to find funding. I salute Sequoia Funds and wish
| them success.
| rkk3 wrote:
| Does this even mean anything in practice?
|
| When to distribute to LP's is a controversial question for VC's,
| Some do immediately after IPO & some continue to hold. Seems like
| Sequoia is just being explicit about potentially holding long
| term stakes in public companies (with VC Fees?).
| ignoramous wrote:
| In practice it does make a difference because the terms between
| LPs and Sequoia are now more in-line with the outlook Sequoia
| has towards the companies it funds; whereas previously, due to
| the rigid 10-year structure, it wasn't.
| cee_el123 wrote:
| I would like to see this as a formalization of the fact that
| companies of the following type need more time if they are to
| grow ethically
|
| companies like Uber, Amazon etc - that subsidize services at the
| expense of service providers (e.g. drivers, warehouse workers)
| [deleted]
| nickff wrote:
| Is there evidence that Amazon treats warehouse workers worse
| than other warehouse/fulfillment companies do? All the
| anecdotal evidence I've heard is that Amazon treats people
| about the same, but pays better than the competition.
| repomies69 wrote:
| Amazon is the biggest and Bezos has too fancy yacht, thats
| why they get all the attention. Fair assumption is that
| amazon is not that different, maybe it is even a bit above
| average because they get so much attention.
| Nasrudith wrote:
| This raises many questions about how ethics are defined if it
| is flat out impossible under all market conditions.
| LurkingPenguin wrote:
| Is there any evidence that companies like Uber and Amazon would
| be able to grow "ethically" to the extent they have if they
| just had more time?
| repomies69 wrote:
| We probably have not heard about their ethical competitors
| which returned -100% to the investors.
| KoftaBob wrote:
| > that subsidize services at the expense of service providers
| (e.g. drivers, warehouse workers)
|
| In the case of Uber/Lyft, it appears from the economics that
| they're subsidizing services more so at the expense of
| investors.
|
| In other words, the bulk of the financial burden is in the form
| of burning through VC/Debt $$$ they've raised. Sure, they also
| have been known to try to shaft the gig workers here and there,
| but they're by no means the ones shouldering the bulk of the
| burden for the subsidizing.
|
| Otherwise, there would be little incentive for gig workers to
| ever join that platform to begin with.
| somethoughts wrote:
| Any one know if this would fall under 13F reporting requirements?
| Asking for a friend :).
| samaman wrote:
| I just want everyone here to know that Sequoia is funded by
| university endowments, and yet still does not have the confidence
| to invest in bleeding edge technology, picking instead to invest
| largely in "moat oriented" software. Nothing overtly wrong with
| it, but I just don't trust them when they claim to finally care
| more about slower growth companies.
|
| https://www.wsj.com/articles/university-endowments-mint-bill...
| rkk3 wrote:
| > I just don't trust them when they claim to finally care more
| about slower growth companies.
|
| Slower growth companies? The piece is about wanting to hold
| their stake in portfolio companies like Square, Zoom and
| Snowflake post-IPO.
| mbesto wrote:
| I don't think you understand how University endowment funds
| work. To put it short they diversify into asset classes - one
| being top tier VC (Sequoia, a16z, USV, etc.).
|
| In other words, endowment funds are investors in virtually
| every type of company possible - public entities, lending,
| credit, cash, hedge funds, startups, etc. - they simply don't
| care what the vehicle is as long as it meets their risk
| adjusted return goals.
___________________________________________________________________
(page generated 2021-10-26 23:01 UTC)