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Sequoia Capital: Why do we need to carry out disruptive innovation to the investment model?

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The best founders want to make a lasting impact on the world, and their ambitions aren't limited to just 10 years. So is redwood.

原文标题：《The Sequoia Fund: Patient Capital for Building Enduring Companies》

原文来源：Sequoia Medium

Roelof Botha, Partner, Sequoia Capital

CZGSWS & AMP; 0x22D, BlockBeats

Editor's Note: For a long time, venture capital has made money by investing early and getting out later. However, sequoia Capital, a world-renowned top venture capital organization, has put forward a new investment model to subvert the venture capital industry based on its long-term accumulation of several successful investment experiences. Under this investment model, Sequoia capital is restructured into sequoia funds and will sequentially allocate money to a series of closed-form funds, redeploying investment returns from different phases into future investments in an investment model similar to compound interest. In his announcement on behalf of Sequoia, Roelof Botha, a partner at Sequoia Capital, detailed this new investment model and the reasons why Sequoia made this disruptive change. BlockBeats sorted out and translated the full text.

The following is the original text

Creative, decisive, independent thinker, warrior and true believer, the spirit that describes our co-founders and sequoia capital's tireless efforts to help them succeed.

Sequoia Capital has been at the forefront since 1972, working with visionary business and technology leaders to keep pushing things to create more possibilities, and this is just the beginning.

Ironically, innovation in venture capital has not kept pace with the companies we serve. The venture capital industry is still constrained by the decade-cycle theory of investing that was popular in the 1970s but now looks rigid. While chip manufacturing is shrinking and programs are going cloud, venture capital still works like floppy disks. Once upon a time, ten-year investment theory was the industry's rationale, but that assumption is no longer true. This theory prematurely weakened the relationship between venture capital and investee, and created a dislocation between the two parties.

The best founders want to make a lasting impact on the world. Their ambitions are not limited to 10 years. So do we.

Our experience working with leading companies like Apple, Google, Cisco, Unity, Snowflake, Zoom, etc., tells us that it takes more than a few years to build a company like this. In recent years, many of our most promising companies have chosen to stay private longer to increase their scale and strategic footprint before becoming public market leaders. They have had decades to build on their strengths, with most of their value generated in the long period of accumulation after their INITIAL public offerings (IP0).

Take, for example, our partnership with Square in early 2011, where I still sit on the board. Square was valued at $2.9 billion in its 2015 initial public offering. Five years later, Square's market cap grew to $86 billion, and today it's worth more than $117 billion. Jack Dorsey, Square's co-founder, said: "As founders, the understanding and trust we have built over the years with Sequoia and Rolof Bota is irreplaceable, and that history and relationship have been crucial to me at critical moments."

Patience and long-term partnerships yield remarkable results. For Sequoia Capital, the ten-year investment theory is out of date.

Over the years, we've been reinventing ourselves while looking for great founders. As we expand from Silicon Valley to China, India, Southeast Asia and Europe, we follow technological innovation around the world. More than a decade ago, we developed the industry's first project search program. We've also launched programs to help founders succeed, from recruiting and roundtables to corporate design and community initiatives.

We can do so much more. Today, we are pleased to announce our boldest innovation to date, one that will help founders build Ivy For the 21st century.

In our businesses in the United States and Europe, we are breaking away from traditional forms of investment based on investment cycles and restructuring Sequoia Capital into Sequoia Funds around a single permanent structure.

In the future, our LP will invest in sequoia funds. Sequoia Fund is an open-ended, liquid portfolio of a series of ivy companies, carefully selected by us. Sequoia funds will, in turn, allocate funds to a series of closed-form funds that will be used for venture capital at each stage from company inception to IP0. The proceeds from these ventures will flow back into the Sequoia fund through an ongoing feedback loop. Investments will no longer have "maturity dates". Our only goal is to add long-term value to our company and LP.

这种新的架构消除了对我们与公司合作时间长短的限制，使我们能够参与公司们的董事会，并且能够在数十年的时间跨度中帮助他们中发挥潜力。与传奇公司的长久合作将成为红杉资本的标志。

It also allows us to hold public shares long after IP0 and seek the best long-term returns for our LP, much of which goes to nonprofits and endowments. Over the last five years, we have delivered unmatched returns to our LP, with capital allocation clearly outpacing capital calls. This foundation, as well as our track record in identifying and helping build category head projects, has given us the confidence to take this bold step.

As part of this change, we will also become registered investment advisers. This increases our flexibility to support the companies in our portfolio through a variety of financing activities. It also enables us to further increase our investments in emerging asset classes, such as cryptocurrencies and seed investment schemes.

This is a fundamental subversion of the venture capital model. We often talk to founders about those precious and bold decisions that shaped their future. For Sequoia, the moment to make such innovations is such a moment. This structure means, for the first time, that the partnerships sequoia builds with companies can last as long as the companies themselves. This move gives us a deeper relationship with our founders and their companies, the prime movers of innovation and value creation. We look forward to working with them to build enduring value and help them fully realize their ambitions.