Sequoia’s India Branch Says It Can Now Make Deals In The U.S.

The three-way split of the Sequoia venture capital firm will allow its Indian and Southeast Asian arms to chase U.S. software deals in hot areas like artificial intelligence that were once off-limits, the managing director of the Bengaluru-based business told Nikkei Asia.

Sequoia Capital, an early investor in Apple, Google, and Airbnb in the U.S., Nikkei Asiain China, Zomato and Byju’s in India, and GoTo in Indonesia, said last week that its Chinese and Indian/Southeast Asian entities would split from their U.S. parent and operate as HongShan and Peak XV Partners, respectively.

Rising political tensions between Washington and Beijing have been blamed for the end of Sequoia’s investment partnership in China. But there has been a lot of discussion about why Sequoia would want to move away from India when global firms like Insight Partners, GSV Ventures, General Catalyst, and Mary Meeker’s Bond Capital have started backing companies in the country.

In an interview, Shailendra Singh, the managing director of Peak XV, talked about the business reasons for the split. He said that his team had been missing out on good investments because of possible problems with companies that were already part of the large Sequoia ecosystem.

The problem was especially big in an area like AI, where different companies could end up making goods that competed with each other. Singh said there were also other cases.

Sequoia didn’t participate in the first two funding rounds for the Indian financial services startup Razorpay because it might have been in competition with an “important U.S. portfolio company,” he said. Sequoia also missed out on chances in robotic process automation and so-called “no-code” or “low-code” startups because of its investment in UiPath.

Singh said that Peak XV Partners would invest more in “cross-border” software companies, which are basically U.S.-based startups “where one of the co-founders is in India or Southeast Asia, or they have engineering teams there.” He said that Peak XV would put together a team in the U.S. to help the companies in its portfolio.

“In the next five to ten years, I think there will be a parallel ecosystem where an American company and an Indian company will compete in every category,” Singh said. “But founders won’t even come to us if they think we have a conflict of interest, and our LPs won’t be happy if we don’t choose the best companies in our region.”

He said that the firm will focus on software deals in India that involve AI, cloud infrastructure, and cybersecurity, as well as banking technologies and consumer companies. Peak XV will keep giving money to startups in Southeast Asia that offer consumer and banking services. It will also keep looking for software deals in Singapore and Australia.

Sequoia was in charge of $53 billion in the U.S. and Europe, $56 billion in China, and $9 billion in India and Southeast Asia before the split. Last year, Peak XV, which is part of Sequoia, raised $2.8 billion, of which $2 billion was set aside for India. This was the most money ever put into an India-focused fund.

Singh wouldn’t say anything about Peak XV’s plans to raise money in Asia, but he did say that one Sequoia partner would no longer invest in the fund of another.

Sequoia started doing business in India in 2006, when it teamed up with a private equity company there called Westbridge Capital. But the top management left in 2011 to start up Westbridge again, while the new leaders of Peak XV stayed on to run Sequoia’s Indian business. Late in 2017, three more top executives left the company to start a separate fund. This was another change for the company.

Peak XV says that its current roster includes more than 400 companies, and more than 50 of them are unicorns, which are startups worth more than $1 billion. It has given about $4.5 billion back to its limited partners and owns shares in portfolio companies that have gone public that are worth $1.6 billion.

Peak XV might find it hard to get out of its investments through initial public offerings. Last year, more than 10 Indian companies put their IPOs on hold because of a “global rout on public tech listings,” according to Bain & Co. They estimate that the value of venture capital exits in India will drop from $9.6 billion in 2021 to $3.9 billion in 2022.

At the same time, investors like BlackRock, Neuberger Berman, and Fidelity Investments have marked down the values of several high-profile Indian startups. This has set the stage for so-called down rounds, which could either increase losses or delay exit plans. Some of the most important Peak XV investor companies are among these, like Byju’s, Pine Labs, and Meesho.

“When it makes sense, we tell companies to change their values. “Every day, the value of a public company changes,” Singh said. “Private companies shouldn’t stick to valuations that are too high if they no longer reflect the market, and we encourage founders to be brave and embrace a reset.”

Sequoia’s breakup also comes at a time when some of its well-known partner companies are being questioned about how they run their businesses. The most well-known case is FTX, whose founder, Sam Bankman-Fried, is being charged by the federal government with stealing billions of dollars from the cryptocurrency exchange.

Closer to home, the CEO of Singapore-based fashion supply chain startup Zilingo, which was one of Peak XV’s big bets, was fired after accusations of financial wrongdoing. Byju’s, another company in the portfolio, is in a legal battle with its backers.

Singh said, “Downstream portfolio problems are not unique to us or to our region.” “We can’t promise that no one will do bad things in the world. But we can do something about it. We can focus on what we need to do to serve our LPs well.