Sequoia Capital cuts back fund for crypto investments

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Sequoia Capital has slashed the size of two of its funds, including a cryptocurrency vehicle raised last year, as the Silicon Valley-based venture capital firm retrenches in response to a sharp reversal in private markets.

The firm cut the size of its crypto fund from $585mn to $200mn and halved its ecosystem fund — which backs smaller venture funds or solo investors — from $900mn to $450mn.

The reduction in the size of the funds, which was communicated to the firm’s limited partners in March this year, comes amid a broad downturn for private technology companies and a liquidity crunch for some limited partners — the investors who provide capital to venture capitalists to invest on their behalf.

“We made these changes to sharpen our focus on seed-stage opportunities and to provide liquidity to our limited partners,” Sequoia said, adding that the firm has returned more than $15bn to its investors over the past three years.

The reduction of the fund sizes was first reported by the Wall Street Journal.

Sequoia has undergone a succession of major changes this year. In June, it announced it would split off its highly successful Chinese entity amid growing tensions between the US and China, and earlier this month it announced partner Michael Moritz would step down after 38 years at Sequoia.

Moritz “helped establish Sequoia as one of the leading technology investment groups in the world”, Roelof Botha, Sequoia’s managing partner, said at the time.

The firm is repositioning itself at a precarious moment for venture capitalists, as private markets reset after more than a decade of growth during which funds ballooned in scope and scale.

Sequoia’s ecosystem and crypto investment funds were announced in early 2022, when the venture market was riding high. Since then, rising interest rates and falling economic confidence have hammered start-up valuations, reduced public listings to a trickle and stalled venture investment.

“Venture investors are just a little more cautious in general,” said Conor Moore, a partner in KPMG’s venture capital practice. “There’s still money there to be invested but the pace has slowed down because exits have all but stopped.”

Cryptocurrency investment has been particularly hard hit, with a number of the sector’s most prominent companies embroiled in regulatory or legal disputes. Investment into cryptocurrencies and projects fell 80 per cent between the first quarter of 2022 and the first quarter of 2023, according to PitchBook.

Sequoia’s most high-profile bet in the sector was FTX, Sam Bankman-Fried’s cryptocurrency exchange, in July 2021. The company collapsed last year, and Bankman-Fried has been charged with multiple counts of fraud. Sequoia has written down its $214mn investment in the company to zero.

The collapse of FTX has cast a pall over the sector, and Sequoia will now deploy its downsized fund into early-stage companies. The company said it might still invest into crypto via its other funds.