Sequoia Capital, a storied venture capital firm, announced today that it has launched a $195 million dedicated seed fund, its fifth. The vehicle will be used to support founders throughout 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 worldwide and that is currently accepting applications.
The capital comes as the pre-seed and seed world, already a growing part of the startup ecosystem, becomes more attractive to investors who want to avoid the chaos of the late-stage market. AngelList data, released today, tells part of the story, noting that median pre-seed valuations held steady quarter-on-quarter last year while late-stage deals, such as Series B, fell to almost a third.
Jess Lee, a partner at Sequoia and All Raise co-founder, said on Twitter that the company will look at all verticals for potential outlier founders, but specifically called out artificial intelligence and consumer social as two areas it is investing in.
In a blog post announcing the seed fund, other partners similarly announced areas of interest. Alfred Lin points to augmented reality and virtual reality as the creations of “the next consumer platform to drive broad innovation.” Shaun Maguire said “hardware has always had 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 take advantage of a more disciplined market, and the reduction in costs of automation, artificial intelligence and even genetic sequencing.
In an email exchange this morning, Sequoia partner Stephanie Zhan said that “it’s not too early to partner with Sequoia. We want to meet the founders at the beginning of their thought process” and “play an active role early on: developing ideas, asking questions as food for thought, introducing them to potential customers, and simultaneously dreaming about their vision.”
Zhan noted that Sequoia has written seed checks to a number of once-new startups that have become major brands, including Airbnb (Sequoia initially invested about $600,000 in the company); Dropbox (it plugged in almost $950,000 earlier) and Nubank ($1 million).
Zhan observed that Sequoia also partnered with the still-private payments giant Stripe “when they didn’t have a single line of code”; it was the first investor in WhatsApp; and Palo Alto Networks and YouTube are housed in its offices.
Sequoia, like many firms, has seen its portfolio reduced during the downturn, which could affect how partners handle due diligence and prospecting in the coming year. This past week, Sequoia-backed company GoMechanic cut 70% of its jobs, with its founder admitting in a LinkedIn post that the outfit made “serious errors in judgment as we pursued growth at all costs.”
Other companies in Sequoia’s portfolio with significant cuts include Bounce, Ola and well, FTX. Indeed, Sequoia’s $200 million investment in FTX has brought a fair amount of criticism to the company’s decision-making track record.
Lin, interviewed by TechCrunch’s Connie Loizos last week at his StrictlyVC event, said the experience didn’t dampen Sequoia’s interest in crypto. Although he said that only 10% of Sequoia’s crypto fund was deployed a year after it was launched, he added that Sequoia remains “long-term optimistic” about crypto.
Lin also told Loizos that “the less fun years are the best time to invest, because all the tourists are gone,” a sentiment echoed by Zhan today in his TC exchange.
Zhan wrote: “The end of the bubble market in recent years is a positive. Constraints breed creativity and discipline. Many of today’s most innovative companies were founded in times of uncertainty, and we believe this is true today.
