Sequoia Capital Slashes Crypto Fund

Sequoia Capital pared back the size of two major venture funds, including its cryptocurrency fund, as part of a dramatic downsizing the storied venture firm is undertaking amid a broad startup downturn.

Sequoia cut the size of its cryptocurrency fund to $200 million from $585 million, according to people familiar with the matter. It also slashed the size of its so-called ecosystem fund, which invests in other venture funds, to $450 million from $900 million, the people said.

Sequoia told fund investors in March it made the decision to reduce the funds to better reflect the changed market. The cryptocurrency fund, for example, will focus more on backing young startups after an industry crash wiped out opportunities to back larger companies.

By paring back the fund sizes, Sequoia is lowering the amount of committed capital required from investors, known as limited partners, who are already seeing lower returns from venture funds and are bracing for further markdowns.

The changes show the difficult cuts venture firms are making during one of the roughest years in recent memory for the startup industry. They are trying to undo the breakneck expansion and liberal spending that characterized a historic startup boom, which no longer makes sense as deal-making slows and funds struggle to raise more cash.

Sequoia announced the two funds in February 2022 as part of an ambitious firm restructuring, after spending months ramping up its investments in crypto. The crypto crash has since wiped out revenue for many blockchain startups.

Long seen as the top venture firm in Silicon Valley, Sequoia has been known to adapt its business to changes in the tech-investing market and ensure it stayed ahead of rivals. But the firm has suffered a series of setbacks under new leadership that has put its brand under severe strain for the first time in years.

The firm suffered a high-profile black eye for its $150 million investment into FTX, the cryptocurrency exchange that collapsed last year. Sequoia issued a rare apology to its investors for the investment, The Wall Street Journal reported.

Sequoia has also come under heat from its investors for an ill-timed decision it made in late 2021 to launch a new fund structure that would allow it to hold public stocks instead of exiting those positions. Sequoia at the time said the new approach would allow it to accrue more profits, but it has instead been hit with billions of dollars in paper losses after the technology market crashed last year, denting its returns and frustrating investors.

Sequoia Capital separated its U.S. and Europe business from its lucrative China business in June after the partnership came under increasing scrutiny from lawmakers and the White House. Michael Moritz, one of Sequoia’s most successful early-stage investors, stepped down earlier this month after almost 40 years at the firm.

Write to Berber Jin at [email protected]