HONG KONG, June 6 (Reuters) – US venture capital giant Sequoia plans to split its operations in China and India/Southeast Asia into two independent companies, it said on Tuesday to better cope with economic and geopolitical challenges.
The split, in which the two new companies will launch their own brands, will be completed by March 31, 2024, Sequoia said in a statement signed by managing partner Roelof Botha, China chief Neil Shen and India and Southeast Asia chief , Shailendra Singh, was signed.
The company’s US and European venture businesses will remain known as Sequoia Capital.
Economic challenges and geopolitical tensions have hampered fundraising and investment, and reduced returns for global venture funds.
“It has become increasingly complex to run a decentralized global investment business,” Sequoia said in the statement. “This makes the use of centralized back office functions more of a hindrance than a benefit.”
Investments by global players in China, in particular, have slowed as the world’s second-largest economy struggles to emerge from containments of the COVID-19 pandemic and after tightening regulatory oversight that hampered growth in the tech and internet sectors.
Sequoia China will keep its current Chinese name and adopt the HongShan name in English, while Sequoia India and Southeast Asia will become Peak XV partners, the company said.
According to the statement, Sequoia began investing in local companies in China, India and Southeast Asia more than 15 years ago.
Founded and led by former entrepreneur and investment banker Shen, Sequoia China has invested in more than 1,200 companies in sectors ranging from technology to healthcare. The company has approximately $56 billion in assets under management and raised $9 billion across four funds in 2022.
His trophies include social media giant Bytedance, delivery and local services company Meituan (3690.HK) and online fashion retailer PDD Holdings Inc (PDD.O).
A Sequoia Capital spokesman said business considerations were the primary reason for the split.
“VERY RATIONAL CHOICE”
Security concerns in the US and trade restrictions after one another have kept many dollar investors in China aside lately. The Biden administration has been working on new rules to limit US investment in China and Sequoia has hired a national security firm to advise them on mitigating such risks, sources told Reuters.
“This separation should help each regional entity have more flexibility to pursue investment opportunities independently, better manage the evolving geopolitical environment and local compliance requirements, and also address the portfolio conflicts between entities,” said Weiheng Chen, head of the 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 amid China-US tensions under the global brand.
The split will allay concerns of many yuan investors, which could make HongShan more attractive to them, Yu said.
“It’s an inevitable and very rational decision.”
China-focused venture capital raising is heading for its weakest first half 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 crossfire between China and the U.S. since the Trump era over its ownership of global social media platform TikTok, and is still under close scrutiny in the U.S . Shen will remain on the board of Bytedance after the split.
“As each company’s portfolio has expanded to include companies that are becoming world leaders, we have seen growing market confusion due to the Sequoia common brand, as well as portfolio conflicts between the companies,” Sequoia said in the statement.
Sequoia India is the country’s largest venture capital firm, with $9 billion in assets under management. Singh and his team launched a $2.5 billion India and Southeast Asia fund last year, their largest fund to date.
Their biggest investments include grocery delivery giant Zomato (ZOMT.NS), software company Freshworks (FRSH.O), and troubled hotelier Oyo.
The company has been grappling 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, Roxanne Liu in Beijing and Krystal Hu in San Francisco; Adaptation by Bernadette Baum, Mark Potter and Paul Simao
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