As Silicon Valley investor Sequoia Capital breaks away from India and China partnerships citing portfolio conflicts, the spotlight is on how the three entities it has created will chart their individual paths. In an emailed interview, Shailendra Singh, managing director of Peak XV Partners, the rebranded India & Southeast Asia business, tells ET about the way forward for the newly independent fund, which has $2.5 billion in dry powder ready to be deployed. Edited excerpts.
Since inception, Sequoia Capital has raised its own funds and invested out of the respective balance sheets across regions. The regions used the same brand and some back-office functions but were always built independently. It was never a centrally run business. So, the firm in each region operated with dedicated funds and teams. Calling it an exit is incorrect.
It has become increasingly complex to run a decentralised global investment business. This has led us to reconsider operating as a single global brand. As a result, the leaders felt that there is greater value to be created for our founders and LPs (limited partners) if we move to fully independent partnerships. Functioning as an independent business will help us take forward our vision and allow us to continue strengthening our positions in existing markets, while going after unbounded new opportunitise.
Is this because India’s venture market has not given big returns in 15 years? How much does it have to do with the corporate governance issues that have hit Sequoia India in the past year?
Sequoia India has returned $4.5 billion (Rs 36,000 crores) to LPs to date. India is a deep market now and we have shown over the last several years that exits, which were a concern, are realistic and possible.
Governance is not an issue that is unique to our India & Southeast Asia (SEA) business. We’ve seen multiple investors and multiple regions getting impacted by governance issues. For instance, if you look at the three recent incidents of wilful fraud, there were 24 co-investors in the Indian companies who acted together in taking decisive action. So, governance is not unique to us as an investor, or to India & SEA as a region.
How much of this has to do with the fact that the US partnership wants to only focus on the US, just like its other VC peers — Benchmark, A16Z, others?
We always believe in doing what will deliver maximum value to our founders and LPs. We believe the regional entities had reached a stage where operating as independent businesses would allow greater flexibility and agility in the investment process, elimination of brand confusion and no portfolio conflicts. The driving factor for this decision is that each business line has become a leader in its market, and this is the time when we believe that it makes business sense to operate as independent entities or distinct firms with separate brands.
How difficult will it be for the India team to operate without the Sequoia brand? How has it been since the news broke?
Our track record is our earned brand. Our founder relationships are our earned brand. Our investment track record and deep involvement in cultivating founder communities and the startup ecosystems in regions where we operate speak for themselves. This commitment will not change … one founder told us that they want to be the first Peak XV term sheet. When we look back, we’ll find that we served our founders and LPs very well by making this choice.
How have LPs taken to it? Will they expect the India and SEA fund to be resized going forward?
There will be no change in our fund size or structure. Everything remains the same. In fact, this shift is going to give us lots of agility and flexibility.
What will Peak XV do differently than Sequoia in terms of investments and overall strategy?
What’s changed is we have a new brand name. We are now a fully independent business with our own distinct identity and brand. We expect more agility in the investment process. By eliminating centralised legal and compliance functions, we can now make decisions based on our nuanced understanding of local regulations, rather than be constrained by regulations that may have no bearing in our region. This is one example of how we will be able to make the investment process nimbler.
Second, with this move we eliminate brand confusion. While we were separate entities, at times the shared Sequoia brand has caused market confusion. For instance, in many regions, founders are confused by which Sequoia entity they should engage with. In other cases, there is confusion around which Sequoia entity has partnered with a company.
And third, we will reduce cross-border portfolio conflicts. For example, prominent Sequoia India SaaS companies like Druva, Clevertap, Sirion Labs and Atlan Data have all had this issue, where there is a Sequoia Capital portfolio company that competes with them. As the India to global SaaS ecosystem grows rapidly, we expect this issue to become more difficult over time. Now, with separate brands, we can avoid this issue.
Source : Economic Times