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| Hey Insiders, Today we are bringing you an analysis of why Sequoia Capital is splitting up into three independent VC firms and whether the U.K.'s VC funding slump will continue in the second half of 2023. Scroll down for some top funding news and quick hits, then let us know which sector-specific funding you'd like to see more of in future issues! Karan
p/karan-chafekar | |
| 1 | | Sequoia Capital is splitting up its business into three fully independent VC firms. The U.S. and Europe-focused entity will retain the Sequoia Capital brand. The Chinese division, Sequoia Capital China, will be rebranded to HongShan, the English translation of Sequoia — named after California's famous trees. Meanwhile, Sequoia India and Southeast Asia will be rebranded to Peak XV Partners, a reference to Mount Everest. The split will be completed before March 2024. 
Sequoia's split comes as the firm struggles with the heavy markdowns on its investments and a rout in technology stocks that have wiped off returns on its publicly held stocks. Sequoia has faced flak recently over its failed bets, including the bankrupt crypto exchange FTX; and its singular fund structure, which allowed investors to hold on to equity for longer. The U.S. fund moved to the singular fund structure, dubbed the Sequoia Capital Fund, in February 2022. Shortly after, the slump in share prices of portfolio startups wiped off gains, with Sequoia potentially losing out on $7B in returns after holding onto stocks of Unity and DoorDash by mid-2022. Earlier this year in March, Sequoia allowed limited partners to withdraw capital from its evergreen fund. The three investment heads, Roelof Botha, Neil Shen, and Shailendra Singh, dismissed rumors that the move was due to the rising tensions between the U.S. and China. Instead, Sequoia cited the conflict of interests, diverging investment thesis, and increased complexity in maintaining centralized regulatory compliance as the key reasons behind the move. Earlier last month, Sequoia roped in national security advisor Beacon Global Strategies to assess the impact of impending U.S. government restrictions on its investments in China. That suggests that Sequoia is downplaying the role of rising U.S.-China tensions in the split when it could be a core factor. With President Joe Biden on the verge of signing an executive order to restrict U.S. investments into critical sectors in China, several other VC firms will likely follow in Sequoia's footsteps and split their Chinese VC divisions into independent units to limit the damage from the restrictions. Sequoia's three regional units were largely independent, with each division having its individual deaflow and portfolio decision-making. The three units shared only back office functions, including compliance, finance, investor relations, basic infrastructure, and an online portal. While there were few overlaps in limited partners in the funds, the three regions largely had their own distinct investor base. However, the units had a profit-sharing agreement, which will now be terminated by Dec. 31. With the split, the independent units will be free to make investment choices they otherwise had to previously back out of due to conflict of interest. Singh imagined similar clashes as AI investments catch speed. He added, "If we got locked out of important companies in our region and couldn't invest in them because of founder conflict in AI, that would be pretty debilitating." Despite the split, Botha hopes the three independent companies see each other as cousins with a shared heritage. He added, "It's been an enormous success because we ourselves were entrepreneurial and helped give rise to four additional fabulous businesses that are now leaders in their own right." |     | |
| A message from our sponsor, Wing VC. |  | | Meet the Best Companies in Enterprise Tech: Presenting the 5th Annual ET30 The Enterprise Tech 30, now in its 5th year, identifies the best companies in enterprise tech as chosen by an exclusive group of 96 venture capitalists across 74 firms. It serves as a platform for the tech industry to identify, learn about, and build relationships with today’s most promising private companies. This year’s cohort is unlike any of the previous four. In this report you can expect: - Over two-thirds are new to the ET30.
- Nearly 30 percent of the companies on the list are in the generative AI category.
- Half are in the developer platform and tools category, an increase from years past.
- Many span multiple categories, including security, fintech, and productivity tools.
And, some of the previous year’s winners are seeing tremendous success: Of last year’s ET30 companies, one has been acquired (pending), and 20 have raised follow-on capital of $9.3 billion in total. Of the initial ET30 companies in 2019, the total valuation has increased by $264 billion since the 2019 report publication date. See The List | |
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So far this year, U.K.-based startups have inked 1,015 deals, down 61.7% YoY from the same period a year ago, per Pitchbook. From the start of Q1 to date, U.K.-based startups raised nearly €7.6B ($8.1B) in VC funding. Deal value slumped by 245.2% from the same period in 2022. Startups raised €4.2B ($4.5B) in Q1. In the current quarter to date, startups in the region have nabbed €3.4B ($3.6B) in VC funding. Judging by the consecutive quarterly declines, funding for U.K.-based startups is expected to remain subdued for the rest of 2023. However, there is cautious investor optimism about a potential recovery in the market, with investors hoping that the worst of the market turbulence is over. The improved geopolitical and macroeconomic conditions could result in positive investor sentiment toward VC funding in the region in the second half of the year. Quarterly funding reached its peak value of €14.5B ($15.5B) in Q1 2022, surpassing the previous peak of €8.9B ($9.5B) from the same time a year ago. VC deal-making slump has hit the U.K. the hardest among European nations due to an unstable political environment, which further exacerbated the impact of the global VC funding pullback. Additionally, the nation has a higher number of mature late-stage startups, which investors are unlikely to invest in right now, given the macroeconomic headwinds. As a result, there were fewer outsized deals, bringing down the total capital invested. Per KPMG's Q1 2023 Venture Pulse report, investors remain optimistic about the B2B technology sector, which is a key driver of investments in the region. Business services and energy transition startups continued to attract significant investment from investors. On the other hand, investors' appetite for consumer retail and real estate startups waned. Funding is also expected to remain strong for alternative energy, cleantech, defense, cybersecurity, and generative AI sectors. Despite the dip, the region did witness a couple of mega-fundraising rounds, including British consumer lending platform Abound's £500M ($623M) funding from K3 Ventures and GSR Ventures and investing platform eToro's $250M round from ION Group and SoftBank. Other notable fundraisers include B2B fintech Bank of London's $160M round, EV automotive startup One Moto's $149M round, and autonomous vehicle software maker Oxbotica's $140.3M fundraiser. Checkout.com remains the highest-valued startup in the region. However, its valuation has fallen from its peak figures of $40B in January 2022 by 77% to $9.35B. Its nearest rival in post-money valuation is Revolut, which had a peak valuation of $33B. In April 2023, investor Schroders Capital Global Innovation Trust marked down the value of its stake in Revolut by 46%. | | | |
| 3 | | Today's Funding: Biotech - German advanced radiopharmaceutical biotech firm ITM Isotope Technologies Munich SE raised €255M ($272M) in equity funding led by Temasek. BlackRock Alternatives, Qatar Investment Authority, Nextech, ATHOS, and Carbyne participated in the round.
- Italian biotech firm AAVantgarde Bio, which is developing gene therapies for inherited retinal disorders, closed its Series A round with €61M ($65M) capital co-led by Atlas Ventures and Forbion. Longwood Fund and Sofinnova Partners participated in the funding round.
- Nashville, Tennessee-based hyperhidrosis non-invasive treatment medical device company Candesant Biomedical secured $35M in Series B funding led by KCK MedTech. Polaris Partners, Astia Fund, and Correlation Ventures backed the fundraiser.
- Automated specialty medication onboarding solutions maker RxLightining nabbed $17.5M in Series A funding led by LRVHealth, with participation from McKesson Ventures, Novartis, Hearst Ventures, and HealthX Ventures.
Blockchain - NewRoad Capital Partners led a $26M Series B funding into WaveBL, a startup that is leveraging blockchain technology to electronically transfer trade documents. The round was backed by ZIM, Contour Venture Partners, Frank Sica, Techstars Central, and Reefknot Investments.
Climate tech - San Francisco-based carbon removal technology startup Charm Industrial raised $100M through a General Catalyst-led Series B funding round.
Life sciences - New York-based nutrapharma and digital wellness life sciences company Mend raised a $15M Series A round led by S2G Ventures.
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| 4 | | Quick Hits: - Want to invest in one of the Top 5 Fastest Growing Industries in the U.S.? Join R3 Printing as they take on the $18B 3D printing industry.*
- Facebook co-founder Eduardo Saverin's VC firm B Capital Group is looking to raise $500M toward its third Ascent Fund, which aims to back early-stage startups across enterprise software, healthcare, fintech, and climate tech domains. Earlier this year, the firm raised $2.1B for its third growth fund.
- Amazon has deployed $110M from its logistics-focused Amazon Industrial Innovation Fund into startups a year after raising the $1B fund.
- EQT-backed Swedish hyperscale data center startup Evroc AB intends to raise $3.2B (€3B) through a mix of equity, debt, and grants over the next five years to build eight large data centers across Europe.
- HR software startup ProSky's founder and CEO Crystal Huang pleaded guilty to manipulating the balance sheets of her company in order to raise more than $5M in funding from VCs.
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Term of the Day Clawback: The clawback clause is a provision that gives investors and partners the opportunity to recoup funds or equity given to businesses. Question of the Week Have you ever had to compromise your values for your career? Join the conversation |
INSIDE VENTURE CAPITAL LEADERBOARD (7 DAYS) |
 | Analyst | | Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot. | | This newsletter was edited by Aaron Crutchfield | |
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