Sequoia Capital Decouples U.S. and China Operations Amid Rising Geopolitical Tensions

June 07, 2023

Sequoia Capital, a significant player in technology investing, announced it is separating its China and U.S. businesses due to increasing geopolitical tensions and business complexities. The Silicon Valley-based venture capital firm, known for investing in startups like TikTok’s owner, plans to split into three autonomous firms in the U.S., India, and China by March 2024.

The company cited increasing market confusion due to the shared Sequoia brand and portfolio conflicts across entities as the main reasons for the move. Aiming for a "local-first approach," Sequoia aims to prevent global entities from conflicting with each other.

Sequoia's separation comes in the wake of escalating trade relations between the U.S. and China, making investing across the world's two largest markets more challenging. The Chinese unit, under the management of Neil Shen, who led early investments in Alibaba and TikTok's parent company ByteDance, will be rebranded as HongShan, managing nearly $56bn in assets.

Sequoia Capital China has faced mounting political scrutiny in the U.S. over its investments in Chinese companies, including DJI and AI startup DeepGlint, which are seen as national security risks by Washington. Its backing of ByteDance has also become problematic with the U.S. threatening to ban the social networking app in the country, complicating plans for an initial public offering of the Beijing-based company.

Last year, when Sequoia Capital China raised $9bn for investment in the country’s start-ups, half of the fund came from U.S. investors like MassPRIM, which manages pensions for Massachusetts state employees and teachers. To reassure its American investors, Sequoia China has begun consulting outside policy experts before making sensitive investments.

The split will also cease a profit-sharing arrangement that allowed individual partners in the different entities to share rewards when companies in another entity's portfolio are sold or go public. Additionally, it will end a practice of employees in one Sequoia region investing alongside funds in another region. Despite the breakup, Sequoia Capital's CEO Roelof Botha highlighted the success of the newly separate entities, stating that they are now flourishing businesses in their own categories.

William Lemanske