Sequoia Capital, a well-regarded venture capital firm, today announced the launch of a dedicated $195 million seed fund, its fifth. The vehicle will be used to support founders across the United States and Europe; the capital will also be used to invest in future cohorts or its Arc program, an internal Sequoia initiative that invests between $500,000 and $1 million in emerging founders around the world and is currently accepting applications.
The capital comes as the world of pre-seed and seed, already a growing part of the startup ecosystem, becomes even more attractive to investors who want to avoid market turbulence at a later stage. Data from AngelList, released today, tells part of the story, noting that median pre-seed valuations remained consistent quarter over quarter last year, while trading at a later stage, such as Series B, fell by almost a third.
Jess Lee, partner of Sequoia and co-founder of All Raise, said on Twitter that the company will be looking at all verticals for potential outlier founders, but has specifically named artificial intelligence and mainstream social as two areas in which it invests.
In a blog post announcing the seed fund, other partners also hinted at areas of interest. Alfred Lin called augmented reality and virtual reality the stuff of the “next consumer platform to drive innovation at scale.” Shaun Maguire said “hardware will always have my heart”. Roelof Botha, the recently appointed global head of Sequoia, kept it simple, writing in the post that he is looking for founders who are taking advantage of a more disciplined market and the falling costs of automation, artificial intelligence and even genetic sequencing.
In an email exchange this morning, Sequoia partner Stephanie Zhan said it’s “never too early to partner with Sequoia. We want to meet the founders early in their thinking” and “play an active role early on: fleshing out ideas, asking questions as food for thought, pitching them to potential clients and dreaming up their vision together.”
Zhan noted that Sequoia has written seed checks to a number of once fledgling startups that have grown into big brands, including Airbnb (Sequoia initially invested around $600,000 in the company); Dropbox (he plugged in around $950,000 at first) and Nubank ($1 million).
Zhan observed that Sequoia had also partnered with the still-private payments giant Stripe “when they didn’t have a single line of code”; he was the first investor in Whatsapp; and Palo Alto Networks and YouTube were incubated in its offices.
Sequoia, like many companies, has seen its portfolio humiliated during the recession, which could impact how partners handle due diligence and procurement in the year ahead. Last week, Sequoia-backed GoMechanic cut 70% of jobs, with its founder admitting in a LinkedIn post that the company had made “serious errors of judgment as we tracked growth at all costs”.
Other Sequoia portfolio companies with deep cuts include Bounce, Ola and many FTX. Indeed, Sequoia’s $200 million investment in FTX has received fair criticism for the company’s decision-making track record.
Lin, whom TechCrunch’s Connie Loizos interviewed last week at her StrictlyVC event, said the experience hasn’t soured Sequoia’s interest in crypto. Although he said that only 10% of Sequoia’s crypto fund had been deployed a year after launch, he added that Sequoia remained “long-term optimistic” about crypto.
Lin also told Loizos that “the not-so-fun years are the best times to invest because all the tourists are gone,” a sentiment Zhan echoed today in his exchange with TC.
Zhan wrote, “The end of the sparkling market in recent years is positive. Constraints breed creativity and discipline. Many of today’s most transformative companies were founded during times of uncertainty, and we believe the same is true today.