What Can Sequoia Capital Gain from the Paradigm Shift in VC and the Demise of Traditional VC Investment Structures?
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What Can Sequoia Capital Gain from the Paradigm Shift in VC and the Demise of Traditional VC Investment Structures?
Sequoia Capital now not only has cash and flexibility, but also possesses what others lack—the relationships with Silicon Valley founders built over decades, experience in scaling the tech industry's largest enterprises, and an extraordinary network.
Navigating Web3 tides with focused insightsAuthor: Sam
Translation: TechFlow
In my August article, I mentioned that the "venture capital" we once knew is dying. Those calling themselves "venture funds" now face a choice: scale up to cope with the wave of cash from global finance entering private software investing, or find new forms of venture financing beyond software and traditional tech.
Amid this backdrop, Sequoia Capital’s bold move stands out.
This week, Sequoia announced the creation of a large new fund called “Sequoia Capital Fund.” Unlike typical time-bound funds, this one is an open-ended, perpetual vehicle—meaning it will never need to return capital unless limited partners (LPs) explicitly choose to redeem. The Sequoia Capital Fund will allocate capital into more traditional venture sub-funds while also being registered as an investment advisor, enabling broader strategies including deployment in cryptocurrency markets.
Frankly, I wish I had genuine insight into this strategy (I enjoy playing contrarian). But while Sequoia's claim of a “fundamental disruption to venture capital” in its announcement may be overstated, I believe the real power of this move is far greater than most realize.
Today’s investment world is changing faster and becoming increasingly unfamiliar—making such moves logical in many ways. Venture firms are navigating this environment, but Sequoia exemplifies it particularly well, as it seeks to defend against incursions from hedge funds and private equity firms while leveraging its existing dominance in the venture market. Here’s my take:
Sequoia’s creation of a large open-ended fund grants the firm a series of new advantages, making it significantly harder for certain hedge funds and private equity firms to compete.
Here are those advantages, listed from most obvious to least:
1. Asset Scale Advantage
Anyone paying attention knows that non-seed venture funds must achieve massive scale to survive. As competition intensifies and market transparency increases, you may no longer achieve the same multiples on individual investments—but you can compensate through volume.
On this front, Sequoia’s move is transformative. In terms of deployable capital, Sequoia has historically been smaller than firms like Andreessen Horowitz (a16z), but by consolidating all its assets under management, it instantly becomes the largest traditional venture capital firm in Silicon Valley (though still much smaller than some East Coast counterparts).
By centralizing everything into a single master perpetual fund, Sequoia no longer defines itself by “currently deployable dollars,” but instead operates using the full sum of its managed assets.
This is a massive shift—transforming Sequoia from a firm managing just several billion dollars into a behemoth overseeing over $45 billion in public equities (and soon receiving another windfall from Stripe).
2. Agility Advantage
The era when large venture firms operated just one fund at a time is long gone. Like private equity firms and other diversified financial institutions, venture capitalists now run multiple funds simultaneously with different managers and strategies.
But without a central fund, this approach creates significant friction—leading to awkward capital allocations. For example, they might have to tell LPs that to invest in one area, they must also commit to another less attractive vehicle. This strains LP relationships and slows down the firm’s ability to launch new funds quickly to capture emerging opportunities.
With all new funds having only one LP—Sequoia itself—this new model drastically reduces such friction.
3. Talent Recruitment Advantage
In the age of solo operators, large venture firms face talent challenges—if you can easily raise your own capital, keep most of the profits, and avoid partnership politics, why join a giant firm?
I suspect Sequoia has been wrestling with this question for years. Consider Matt Huang, who left Sequoia in 2018 to co-found Paradigm, a crypto-focused venture firm.
By all accounts, Paradigm is thriving, while Sequoia largely missed the crypto boom and is now scrambling to catch up. I don’t have insider details, but I can imagine the internal reflection:
Why couldn't Sequoia's platform accommodate what Matt Huang wanted to build?
If you want to scale capital, you need to scale talent—and assuming top people want to sit in an office fighting over deals and debating compensation is outdated. It doesn’t matter how “prestigious” a business card is.
But with a master fund and on-demand sub-funds, Sequoia can credibly position itself as the ideal platform for the next generation of great investors. In theory, every investor at Sequoia could run their own fund—with Sequoia as their sole LP. By eliminating all LP management burdens, talent can focus purely on generating returns. This compelling vision can attract and retain the next wave of young investors—a stark contrast to the old hedge fund model.
4. Tax (and More Importantly, Lending) Advantages
Everyone recognizes the tax benefits. With rising taxes, structuring vehicles where you never have to sell assets is often wise (especially since many venture LPs are tax-exempt).
But the lending advantage is even more significant. With hundreds of billions in liquid assets, you can leverage them. If the next generation of venture funds operates with a permanent capital base, they begin to resemble a new, improved version of buyout funds.
Instead of borrowing against specific dollar commitments for specific deals, they can use their massive balance sheet to finance major investment activities directly.
Sequoia hasn’t disclosed anything here—but if I were running Sequoia, I’d opt to fund the next investment tool with debt rather than asking LPs for more cash.
5. Deal-Winning Advantage
At the announcement, Sequoia partner Roelof Botha spoke about long-term alignment with founders, specifically mentioning how Sequoia partners can serve on founder boards for “decades.” While his comments about board seats strike me as somewhat disingenuous—after all, Peter Thiel remained on Facebook’s board long after selling his shares, and Botha himself stayed on Square’s board despite early distributions—the model does create real alignment in key areas.
For late-stage companies planning to go public, having a set of investors committed to a “permanent hold” strategy is genuinely appealing. Even more ironically, if Sequoia can establish the ultimate founder club—allowing companies to invest in it, thereby giving them access to permanent capital for decades—it becomes a powerful founder benefit. In competitive deal environments, this could tip the scales.
6. Where Do We Go From Here?
Ultimately, the question is whether this move is unique to Sequoia (strategically sensible given its position in the global financing ecosystem) or whether it signals a new model—or at least a viable alternative—for venture capital firms. I believe many are already discussing this. But realistically, most lack the brand, LP relationships, or balance sheet to replicate this structure, so I don’t expect others to rush into adopting it.
That said, large hedge funds and private equity firms—like Tiger Global—should be nervous. Sequoia now combines cash and flexibility with something they lack: decades-long relationships with Silicon Valley founders, proven experience scaling the tech industry’s biggest companies, and an unparalleled network.
Sequoia made a strong first move. The race is on.
Asset management in venture capital is a strange concept. I hope Sequoia’s move helps clarify it. Most financial institutions define assets under management (AUM) as the net asset value of all their investments. Yet venture capitalists typically refer to AUM based on capital raised and invested value. On this point, Sequoia is essentially aligning with standard industry practice.
Author: Sam is currently a General Partner at Slow Ventures and co-founder of Fin Analytics. He served as Vice President of Product Management at Facebook from 2010 to 2014. Prior to joining Facebook, Sam founded drop.io, which was acquired by Facebook in 2010. Before drop.io, he worked at Bain & Company. He is married to Jessica Lessin, founder of The Information.
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