Sequoia Capital raises $700m growth fund. Contrarian brilliance or bad timing?

By Sarah Lacy , written on December 17, 2012

From The News Desk

According to SEC filings, Sequoia Capital has raised a new $700 million fund called the Global Growth Fund.

It's either a bizarrely late move for a firm like Sequoia, a contrarian one, or plain bad timing-- depending on your perspective and view of where the market is going.

All the other big firms-- with the exception of Benchmark Capital-- dove into the growth game back in 2010 or early 2011. Even then, it was a considered somewhat risky hearkening back to the bubble days-- when mega-funds investing in pre-IPO companies fared poorly. But Russian billionaire tycoon Yuri Milner had proven there was demand and exploited a hole in the market for late stage liquidity while no one was paying attention. Simply put, the Valley was jealous.

About the time of the Groupon $1 billion round, most of the big VCs had jumped on this bandwagon, were doing late stage deals at sky-high valuations and proclaiming that Milner wouldn't get another hot late stage deal again. I assumed it was restraint on Sequoia's part that it was seemingly sticking to its early stage knitting-- at least comparatively.

Here's a chart I did for TechCrunch at the peak of the growth stage mania. The red doesn't reflect that these deals didn't make money, many of them did, although few of them did as well as these VCs hoped at the time. The red merely reflected deals that were aggressively priced back when I did the chart, as you'll see from the key below.

It's dated, but gives you a snapshot of what the growth stage world looked like some 18 months ago when everyone was jumping in. You can see Sequoia and Benchmark were the least active, while other firms tried to make up for missing the hot pre-IPO companies on the early stage with gaudy late stage bets:

Screen Shot 2012-12-17 at 6.47.28 PM

Well, apparently judging by the new fund the reticence wasn't a religious thing with Sequoia the way it is with Benchmark-- a firm that has vowed they'll never get back into that kind of investing.

Launching a growth fund now is bizarre timing to say the least. The pace of these deals has slowed as the world has generally accepted that VCs were just lousy at pricing them. Sequoia hasn't commented on the fund, but I'm curious what has suddenly changed to get them hot on late stage deals nearly two years after their competitors were.

My hunch is that "Global" is the key word in the phrase "Global Growth Fund." Sequoia has been one of the more active and consistent of the big six firms when it comes to international investing, with very active and established funds in Israel, India and China. Indeed, unlike many Valley firms, it saw hefty returns from those markets in 2011.

But that, too, is a bit contrarian considering returns in emerging markets have been in the tank of late. 

Contrarian isn't always bad; we bitch all the time about venture firms in Silicon Valley merely following the herd. You certainly can't say that this time.... given the lag with the herd. Perhaps this is Sequoia's way of keeping promising international deals alive until the public appetite for them returns.