The Fall of Peak XV
Sharing what i have been ruminating in over the last few months since Sequoia Cap spun off Peak XV and HSG cap. Note that these are my opinions across multiple personal notes I have taken.
Peak XV has been forced to slash its management fees and return nearly half a billion dollars to investors and the cracks are starting to show. Sequoia US is legacy money and can raise money on a whim, Peak XV has to prove if it can do it too.
Here's what I have not been able to wrap my mind around, they're returning $465 million to LPs. 16% reduction in their fund's size. In the VC world, returning uninvested capital is practically unheard of.
They may claim this is due to "overheated markets," but it raises serious questions about their ability to deploy capital effectively imho. Think about this in the most pragmatic way, Masa from Softbank wanted a Trillion dollar fund. Why would any fund return any money is just beyond me.
Also, Neil Shen at HSG Cap is "THE LEGENDARY" investor. The same cannot be said about any partner in Peak XV. This still makes no sense to me why Sequoia US spun off the India and SEA when the region looks more attractive than ever with probably the best growth rate in the entire world. They might say that there is competition between portfolio companies but that makes no sense if your job is to bet on the horse that wins and make money, end of story.
Their competitors are actively closing deals this year. Their caution might actually be smart, but it could also signal a loss of deal flow access and market influence with so much being lost, brand and fund size included.
I am seeing a firm struggling with its identity post Sequoia split. The return of LP capital, fee reductions, and governance issues in portfolio companies paint a picture of a fund that might have lost more than just a name in the separation. Most concerning is the seeming disconnect between their cautious stance and the broader market activity.
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Peak XV returning $465M is a bigger red flag than people realize. In my 15 years following the Indian VC scene, I've never seen a top-tier fund return this much capital. Something's not adding up.
The real story here is how this affects their future fundraising. Sequoia's brand gave them unlimited leverage with LPs. Now they need to prove themselves independently, and this capital return isn't helping them for sure. 💀
Returning money is a smart move. Fund returns will be etched in Peak XV's record for next 10 years. Better to make the DPI look nicer. Few examples of returning money -
- CRV, based in Silicon Valley, plans to return to investors $275 million because the market for mature start-ups has soured.
- In July 2023, Sequoia Capital informed its investors of a 65% reduction in its cryptocurrency fund, decreasing it from $585 million to $200 million.
- Additionally, the firm reduced its ecosystem fund, which supports other venture firms, from $900 million to $450 million.
2021 overheated the markets. Many companies which raised at super high valuations (some @ 100x revenue multiples) are finding it tough to raise subsequently.
Aren't all these example, actually non-examples?
- CRV, based in Silicon Valley, plans to return to investors $275 million because the market for mature start-ups has soured.
A: "plans"? not done yet.
In July 2023, Sequoia Capital informed its investors of a 65% reduction in its cryptocurrency fund, decreasing it from $585 million to $200 million.
- Additionally, the firm reduced its ecosystem fund, which supports other venture firms, from $900 million to $450 million.
A: Same fund?
Unpopular opinion: This might actually be smart capital management. Better to return money than force bad investments in an overheated market. Remember how SoftBank's spray and pray strategy worked out?
Although, there's a middle ground between SoftBank's chaos and returning 16% of your fund. Peak XV seems to have lost confidence in their deal flow. Their competitors are still deploying capital successfully.
😳😬
Could be a GP who attracted that capital moving out, could be corporate governance issue with India entity and hence being returned