The story of Sequoia Capital's reinvention

Driving the news: Sequoia last week announced a large number of changes, including some that actually had begun much earlier in the year. Among them:

• Closing the London office, which resulted in staff layoffs and most London-based investors staying behind.
• Ending the "Arc" batch accelerator program and Scouts program.
• Flattening its investment team to remove "early" and "growth" designations.
• Largely abandoning a novel structure launched in 2021, whereby Sequoia retained shares of portfolio companies after they went public and LPs had annual redemption rights.

Behind the scenes: The announcement came a year after Sequoia elevated Alfred Lin and Pat Grady to firm "stewards," succeeding Roelof Botha.

• The transition was presented as amicable, but multiple sources say it was more like a coup. Botha was booted but remained a general partner on existing funds, on its website, and even appeared at Axios BFD.
• The facade couldn't survive what happened this past June, when SpaceX went public.

• Sequoia had passed on its first chance to back SpaceX in 2017, but got in two years later. That round was pushed by partner Shaun Maguire, who had developed a strong relationship with Elon Musk. Maguire was never offered a board seat, nor did he seek one — believing that Musk viewed boards to be political formalities — and that he was a de facto insider.
• Botha had an even longer history with Musk from the PayPal days. Just a day or two after SpaceX went public, Musk asked Botha to join the SpaceX board — with a particular eye toward audit committee work.
• This is where things explode. Maguire and his Sequoia partners learned of the appointment at the same time as the rest of the world, as first reported by the FT, and suddenly realized that its investment would be restricted to insider trading windows. To them, it was an unforgivable breach of trust. And maybe an intentional provocation.
• Botha is said to have argued that he was honoring his confidentiality promises to SpaceX, and that Sequoia learned within 48 hours (which followed official firm policy). Moreover, Sequoia shares were still locked up, so there was no immediate harm, and now had an actual seat at the table.
• The result was a complete split between Sequoia and Botha, who retains legacy fund economics but no longer is a general partner on funds he helped to raise.

Zoom in: The split also presaged Sequoia seeking to tear down much of what Botha built. It's not as petty as it sounds, but the result is the same.

• For example, Botha launched Scouts. But it now seems to have outlived its usefulness — as many firms have aped the program and there's so much secondary liquidity that non-founders can become angel investors on their own.
• And the evergreen fund, which was never too popular among liquidity-hungry LPs. Sequoia now plans to distribute shares in all of its public companies (one exception is DoorDash/Instacart, which will need to wait on the pending merger).
• The umbrella structure will remain for admin reasons, but future fundraises and liquidity events will revert to more "normal." One possible change could be a merging of seed and early-stage strategies into a single fund, while the growth and expansion fund strategies will persist.

Zoom out: Sequoia believes it was doing too many things at once, and that a streamlined focus will result in better returns.

• But there are hard feelings and outstanding questions.
• Some European founders and investors feel abandoned, even though Sequoia still plans to make European investments from its Bay Area base. One European venture firm even just pitched Axios on how it's the anti-Sequoia, echoing conventional wisdom that native and local teams tends to source the best deals.
• Some LPs worry that Sequoia's remaining seven general partners will gravitate toward later-stage (read: easier) investing — leaving behind an early-stage business that produced Apple, Google, and Nvidia. Or if the changes could cause early-stage founders to look elsewhere, thus slowing inbound deal flow. Sequoia has said not to worry, highlighting the team's early-stage portfolio and how partners now can more easily remain alongside their portfolio companies.
• And then there's some snickering that this is largely an economics concentration play, although none of Sequoia's partners should be hurting for cash.

The bottom line: Sequoia's announcement noted that its GPs "own" the firm, which is very different language than being "stewards" (even though that term somehow also remains).

• It suggests a desire to be more on offense than defense. It also reflects an acknowledgment that while Sequoia's reputation is based on what has come before, its future success or failure is firmly in the hands of its new guard.