Following the rebranding, the profit sharing agreement with Sequoia US will be terminated. Peak XV would probably also relocate to the US to support Indian firms’ international growth, which suggests that the India division will be managed independently from Sequoia US.
On June 6, Sequoia Capital, one of the most illustrious venture capital firms in the world, announced its decision to split into three separate businesses, creating a commotion throughout the startup sector.
With the same staff, India and South East Asia will now operate under the name Peak XV while the US and European organizations would continue to use the Sequoia moniker.
One of India’s largest and most significant startup investors, Sequoia India and SEA has raised $9.2 billion and earned $4.5 billion from startup exits to date.
Shailendra Singh, the managing director of Peak XV Partners, spoke in the following interview, about how founder equity can be affected and whether this indicates Sequoia is pulling out in India. He also discussed the company’s aspirations to expand internationally. Edited passages:
Sequoia (global) has virtually withdrawn from India as a result of the separation. This is at a time when the majority of VC/PE companies are sounding very positive about the nation. Why at this time when everyone else seems to be investing more in India?
You should be aware of our organizational structure before coming to that decision. Consider a worldwide fund that makes investments into India using a single balance sheet. If the fund stops making investments, it would be fair to claim that it has withdrawn.
But if a company runs with region-specific funding, personnel, and local presence, I do not believe that to be the case. Rebranding the company is what we are doing, which is different from retreating.
Since that company was previously independent, nothing is altering. The way Sequoia’s organizational structure is set up, the region utilizes the same brand and a few back-office tasks.
In fact, because we have so much latitude to choose things that are distinctive and particular to our market, we will focus even more on Southeast Asia, India, and other important regions.
In total, Sequoia India and SEA funded $9.2 billion, of which $4.5 billion came from startup exits. What justifies the choice to split the India entity from the US, then? Even though the dynamics between India and China are very different, it almost seems as though Sequoia is hyphenating them.
Directionally, the Chinese business began to resemble the US business somewhat differently. They currently operate a buyout company and have an infrastructure fund. In China, there are two distinctive hedge funds, one of which is for healthcare.
If you consider our journey, let us say we want to raise an INR and travel all the way. It gets harder the more distinctive decisions we want to be free to make. to actually maintain a single worldwide company and face obstacles from regulations everywhere.
Businesses that are heavily regulated, like banks, tend to be regional rather than international. I believe that over time, the investing industry might become a little bit more regional, particularly if legal obstacles to issues like data protection and so forth keep cropping up.
But that was not the main factor. I will tell you a tale from many years ago, okay, when a founder was looking for funding for a new firm. As we grow larger, it becomes more complicated and there is an increasing regulatory load. Because Sequoia US had investments in a competitor company, the founder decided to seek funding from a US fund rather than from us (India). What transpired was a classic case of a corporation experiencing a perceived portfolio conflict. They came to the conclusion that they ought to make another investment.
The incident there was singular. But as of late, 40–50% of total influx comes from foreign corporations. Because in a world where innovation has become more accessible and more businesses have international operations, things like software, Dev Tools, infrastructure, cybersecurity, cloud computing, and AI are crucial for us. These comprise 40 to 50 percent of all investments.
In the next five to ten years, India will, in my opinion, have an ecosystem similar to that of the US. There are American companies and Indian companies in every single category. It will occur.
Our unicorns are currently managing cutting-edge technical infrastructure. We will thus have parallel ecosystems of software firms, dev tool companies, infrastructure companies, cloud computing companies, all of which are formed from Indian brands, I believe and our team believes. And it is the main brand conflict we share. We could manage the conflict if there were only one or two deals per year. But if we have to deal with this conflict every week. It is a serious matter.
All things considered, Sequoia has a distinct equity, or cachet, if you will, in the startup environment. So, how will the founders view the new company? Will LPs still have the same faith in you, and when and where will you resume active investing?
Singh: I have been the strongest supporter of the Sequoia brand, and we are really appreciative of our 17-year relationship with Sequoia. Over time, every business develops its own earned brand. However, over the past 17 years, our team has also developed its own reputation among founders. We have strong bonds with them, a proven track record, and more than 50 unicorns in addition to 19 IPOs. And as you may know, the average tenure of our 16 senior investment professionals is over 10 years.
Thus, there are three parts to our own brand. It has demonstrated success in the past. It has our close founder contacts, which establishes our credibility. I am so appreciative of all the support we received from so many individuals. The first program of its kind in the world, Surge, offered 10 times as much funding as Y Combinator. The Spark Fellowship is the first and, as far as we are aware, the only organization of its sort. The growth equity conference is by far the biggest stop on our journey. The Guild was an avant-garde concept for a community. Horizon is our own special occasion. We built these in order to establish our own brand. These are not things we did because Sequoia was already doing them elsewhere. Other VCs in the sector were not operating like this.
I have the utmost respect for Sequoia, and we are thankful for them, but I also believe that we can move forward with our own brand and develop our partnerships, friendships, and ecosystem support because we have a strong earned brand.
So when do you plan to resume investing? What about the current fund has changed? Do the current limited partners, or investors in venture capital firms, need to recommit? Do you need to make any other significant legal adjustments before you begin investing?
Singh: We sought to defer certain term sheets throughout the past two to three weeks while we ceased signing new term sheets. However, we did not want any of the founders to sign a term sheet and have these inquiries. All term sheets that have already been signed, including those for all of our portfolio businesses, can state that Sequoia India and Southeast Asia invested in them. Therefore, any businesses and investments that have closed, as well as term sheets that have already been signed, may use that rebranding.
We informed them yesterday that we are now prepared to move forward, and many founders have since contacted us to inquire about the possibility of becoming the first business to get funding from the new brand Peak XV. So cross your fingers. Many founders seem to be quite happy to have the Peak XV name, as we have discovered. In fact, three out of four have said they would like to be the first. Therefore, I anticipate that we will sign term sheets for fresh investments with a handful of them before the week is out. Therefore, nothing has stopped for us; in fact, things will now move more quickly because we put everything on hold for two to three weeks prior to this statement. Look, everything remains the same in terms of our investment areas and strategy. One key distinction, though, is that we now have far more freedom to support our founders across borders. Therefore, many other companies employ US citizens as officers and on their India teams.
And we anticipate doing just that. So, in the second half of the year, we will travel to the US, hire “go to market” experts, and recruit leaders to help hundreds of businesses aggressively expand there. In order to help our companies in the US develop their competencies, we will move there right now. In the foreseeable future, we anticipate acting differently in that regard.
Will your LPs discuss the carry structure and management fee? When compared to the industry standard of 2/20, Sequoia has a 3/30 structure.
Singh: There is no requirement for us to alter anything in our LP agreements. Therefore, we are not required by our LP agreements to make any adjustments to the carry structure or anything else. We want to conduct business as usual at this time. Our top priorities are to complete the rebrand, ensure that our founders are aware of what happened and how we can start supporting them in our connections, continue investing in new and fresh sectors, and so forth.
In all honesty, we will be justifying our actions to many LPs over the course of the next two or three weeks. Our TAM (total addressable market) has increased (as a result of this shift), which means that our addressable profit pool of worldwide prospects has increased significantly. This is because we may now invest in any area of technology, regardless of whether other portions of Sequoia are involved in it or not.
Our top priorities are to complete the rebrand, ensure that our founders are aware of what happened and how we can start supporting them in our connections, continue investing in new and fresh sectors, and so forth.
In all honesty, we will be justifying our actions to many LPs over the course of the next two or three weeks. Our TAM (total addressable market) has increased (as a result of this shift), which means that our addressable profit pool of worldwide prospects has increased significantly. This is because we may now invest in any area of technology, regardless of whether other portions of Sequoia are involved in it or not.
Did the US company become afraid of liabilities as a result of the string of governance failures at 4-5 Sequoia India portfolio companies?
Governance has absolutely no influence on this decision, and it is not a problem that is specific to us, to any other investment, or to this area.
What transpires with Surge?
Singh: For us, Surge has been very successful. We are ecstatic beyond belief. Eight cohorts are now complete. Every cohort’s NPS has ranged from 93 to 100. As a result, we will surely double down on Surge, and you can expect us to be highly active during the Seed stage.
Did the US company become afraid of liabilities as a result of the string of governance failures at 4-5 Sequoia India portfolio companies?
Governance has absolutely no influence on this decision, and it is not a problem that is specific to us, to any other investment, or to this area.
What transpires with Surge?
Singh: For us, Surge has been very successful. We are ecstatic beyond belief. Eight cohorts are now complete. Every cohort’s NPS has ranged from 93 to 100. As a result, we will surely double down on Surge, and you can expect us to be highly active during the Seed stage.
As far as I am aware, they do not appear to have any ambitions to invest in India. But whether they decide to in the future is up to them. The main purpose of the split was to avoid brand confusion. Due to the portfolio conflicts brought on by our success in many regions, we were experiencing brand confusion. Theoretically, everyone would be expanding their share of the pie for their respective regions, but I am aware that they do not currently have any plans to invest in India; nonetheless, they will have the option to do so if they so want.
What additional areas are you planning to invest in? Will the investment plan be altered? When partners at Sequoia (Peak XV currently) met with other VCs last month, they sounded very optimistic about generative AI, machine learning, and other models built on top of these technologies.
Singh: In the upcoming quarters, not much is anticipated to change. The only thing that will change is the emphasis on cross-border assistance for entrepreneurs who want to build a US office.
Naturally, winning in AI is a priority for many VC companies, thus it is crucial for us to stay on top of one of the most significant trends in decades.
In four weeks, we will unveil another intriguing product. You will likely witness the launch of a new product from us later in June or in the first few days of July. By product, I mean something like Surge or Spark or possibly something else. It has already been in development for five to six months.
Will you now consider other domestic capital sources?
Singh: We will not require raising any additional funds. There is a ton of dry powder here. So while the concerns about LPs in general are welcome, we will not necessarily have to force ourselves to come up with answers for the next year or two.
Although it is fantastic to have options, we do not have to make a decision for the next two years. Our duty is to study a lot, interact with people, and understand.
Has Sequoia US fully relinquished all rights to its portfolio firms in India and Southeast Asia? When an exit from the current Sequoia-Peak XV pre-transition portfolio occurs in India, would Sequoia US or its partners lose money?
Singh: One Sequoia, a global pool for fee and carry sharing, which we have, will be disbanded. The profit-sharing agreement will end, although there are some subtleties.
