Sequoia Capital, an investment firm long revered for its direct involvement with Silicon Valley’s intricate web of venture capitalists and tech sector visionaries, has decided to reduce its exposure to cryptocurrencies, according to a confidential source.
A Reflection of The Market
In a message to investors, Sequoia Capital announced its decision to reduce its cryptocurrency fund from $585 million to about $200 million, as reported by the Wall Street Journal.
According to Sequoia, the pivot to more traditional sectors is a reflection of current market conditions, in which low-interest loans have gutted through much of the tech industries’ wild spending.
Sequoia Capital curbed crypto investments by a hefty 65% 🐻, opting for a nurturing stance on startups. Not a volatile market apathy, but strategic cognition, folks! 🌱💡 #CryptoInvestments $BTChttps://t.co/hfsAAd8jeV pic.twitter.com/8JvtyShg0n
— Chain Review (@Chain_Review) July 27, 2023
Seeking to avoid the fate of SVB, Sequoia has also downsized its so-called ecosystem fund, which invested in other tech sector startups, to $450 million. Previously, this fund was worth $900 million.
Lower Expectations, Smaller Returns
The two downsized funds were originally announced in February 2022. At the time, they were already part of a restructuring plan imposed by Sequoia’s leadership in response to crypto winter and to the first signs of a global recession.
However, Sequoia’s crypto (mis)adventures were merely beginning. Later that year, the company lost about $150 million when FTX collapsed, prompting the later departure of five key partners.
Sam Bankman-Fried, who famously decided to play League of Legends during a call with Sequoia regarding a potential investment, unsurprisingly turned out to be a letdown to the investors who “loved this founder.” They allegedly leveraged their own reputation promoting FTX, which in turn led to a vote of confidence that otherwise could have prevented the ill-fated investment.
“As a result of defendants’ significant investments in the FTX entities, each was incentivized to leverage their professional reputations and media outreach capabilities to portray FTX as a trustworthy and legitimate crypto exchange.”
Commenting on Sequoia’s decision, Conor Moore, a KPMG VC partner, clarified that the move was representative of the investment sector’s increasing apathy towards the tech sector – and more specifically, towards funding wild ideas, or moonshots in r/wallstreetbets parlance.
“Venture investors are just a little more cautious in general,” said Conor Moore, a partner in KPMG’s venture capital practice. “There’s still money there to be invested, but the pace has slowed down because exits have all but stopped.”
Fortunately for Sequoia Capital, the firm was big enough to simply take the loss from FTX and move on, going so far as to issue a rare apology to investors for the poor judgment.
However, the debacle seems to have understandably soured Sequoia’s view of crypto, at least for now.