By Kane Wu, Julie Zhu and M. Sriram
HONG KONG (Reuters) -U.S venture capital giant Sequoia plans to split off its Chinese and Indian/Southeast Asian businesses into two independent firms, it said on Tuesday, as it tries to better navigate economic and geopolitical challenges.
The split, which will see the two new firms adopt their own brands, will occur by March 31, 2024, Sequoia said in a statement signed by managing partner Roelof Botha, China head Neil Shen, and India and Southeast Asia head Shailendra Singh.
The firm’s U.S. and European venture business will remain known as Sequoia Capital.
The decision comes amid economic challenges and geopolitical tensions that have made fundraising and investment difficult, and eaten into global venture funds’ returns.
“It has become increasingly complex to run a decentralized global investment business,” Sequoia said in the statement. “This has made using centralized back-office functions more of a hindrance than an advantage.”
Investment in China by global players in particular has slowed as the world’s second largest economy battles to emerge from pandemic curbs and after it tightened regulatory oversight that stymied growth in the technology and internet sectors.
Sequoia China will retain its current Chinese name and adopt the name HongShan in English, while Sequoia India and Southeast Asia will become Peak XV Partners, the firm said.
Sequoia partnered with local leaders in China, India and Southeast Asia over 15 years ago, according to the statement.
Sequoia China, founded and led by former entrepreneur and investment banker Shen, has invested in over 1,200 companies in sectors ranging from technology and consumer to healthcare. It manages about $56 billion in assets under management and raised $9 billion in four funds in 2022.
Its trophy assets include social media giant Bytedance, delivery and local services major Meituan and online fashion retailer PDD Holdings Inc.
However, U.S. security concerns and tit-for-tat trade restrictions, have recently kept many dollar investors on the sidelines in China.
“This separation should help each regional entity to have more flexibility to pursue investment opportunities independently, better cope with the evolving geopolitical environment and local compliance requirements, and also address the portfolio conflicts across entities,” said Weiheng Chen, head of Greater China practice at law firm Wilson Sonsini.
According to Steven Yu, a Shanghai-based partner at Chinese law firm Global Law Office, many dollar and yuan investors have concerns about investing in Sequoia China under the global brand amid China-U.S. tensions.
The separation will dispel many yuan investors’ concerns, which could make HongShan more attractive to them, Yu said.
“It is an inevitable and very rational choice.”
China-focused venture capital fundraising is heading for its weakest first half year in at least eight years, Reuters reported last week, citing Preqin data.
Bytedance, in which Sequoia China and U.S. teams were joint investors, has been caught in the China-U.S. crossfire for its ownership of global social media platform TikTok since the Trump era and is still facing close scrutiny in the U.S.
“As each entity’s portfolio has expanded to include companies that are becoming global leaders, we’ve seen growing market confusion due to the shared Sequoia brand as well as portfolio conflicts across entities,” Sequoia said in the statement.
Sequoia India is the country’s biggest venture capital firm, managing $9 billion in assets. Singh and his team raised a $2.5 billion India and Southeast Asia fund last year, their biggest yet.
Some of their biggest investments include food delivery giant Zomato, software firm Freshworks and troubled hotelier Oyo.
The business has grappled with a series of portfolio governance scandals in India since last year.
($1 = 7.1215 Chinese yuan renminbi)
(Reporting by Kane Wu and Julie Zhu in Hong Kong, M. Sriram in Mumbai, and Roxanne Liu in Beijing; Editing by Bernadette Baum and Mark Potter)
