World's Largest VC Sequoia Splits Business Units... Industry Closely Watching Impact

US, China, and India Split into 3 Companies
Impact of Strengthened Investment Regulations on China
US Venture Investment Significantly Declines This Year

Sequoia Capital, the world's largest venture capital (VC) firm, has announced plans to split into three independent entities covering the US, China, and Southeast Asia & India. This decision comes as geopolitical tensions between the US and China deepen, prompting a strategic response. The market is closely watching whether this move will spread across the VC industry as a whole.

According to Bloomberg on the 6th (local time), Sequoia's key partners Roelof Botha, Neil Shen, and Shailendra Singh informed investors that "it is becoming increasingly difficult to operate a dispersed global investment business," announcing the plan to separate the business units. Currently, Botha oversees Sequoia's US and European divisions, Shen manages the China division, and Singh leads the Southeast Asia division.

Sequoia Capital [Image source=Reuters Yonhap News]

CNBC reports that Sequoia aims to complete the split of its current business units into three independent companies?US, China, and Southeast Asia & India?by March next year at the latest. Once the split into three companies is finalized, the China and India entities will operate independently without sharing a portion of their profits with the global headquarters. The brands of the China and India entities are expected to be renamed ‘Hongshan’ and ‘Peak XV,’ respectively.

Botha, who is in charge of the US division, told major foreign media in an interview, "We have been deliberating the decision to split the business units over the past few months," adding, "For years, we have been balancing the costs of splitting the business units against the potential benefits, reassessing whether this is the right decision for the company."

Sequoia is well-known for making significant profits by investing early in leading IT companies such as Google and Instagram. In South Korea, it has invested in companies like Coupang, Toss, and Kurly. In China, since Shen established Sequoia's investment subsidiary in 2005, the firm has made substantial gains by investing in food delivery platform Meituan and iQIYI, often referred to as the Chinese Netflix.

Due to increased regulatory scrutiny by US authorities making smooth investment in Chinese companies difficult, Sequoia appears to have decided to split its business units. The Biden administration is currently considering measures to block US companies from investing in China's advanced technology industries. This is based on the judgment that US investment in Chinese firms could cause the US to fall behind in advanced technology competition. The most likely sectors to be banned for US investment include quantum computing and AI technologies related to military and security.

Moreover, the escalation of US-China tensions and the resulting decline in investments in Chinese companies have significantly influenced Sequoia's decision. According to startup market research firm PitchBook, US venture investments in China have sharply decreased this year compared to 2021?2022.

Bloomberg explained, "As the US government tightens restrictions on China's technology industry, the investment outlook for China remains uncertain," adding, "Once hailed as a competitor to Silicon Valley, Chinese companies are now experiencing a decline in venture capital investment."

Reporter Lee Ji-eun