Sequoia Capital goes back to its roots

Abhay Pandey, managing director of Sequoia Capital, likes to invest in smaller companies and start-ups. This has nothing to do with the investment philosophy of the venture capital (VC) firm, or valuations or deal sizes. His firm believes in investing in companies where they would not be one among many such investors, where their advice was not required.

“We are active investors; we love rolling up our sleeves and helping our portfolio entrepreneurs and management teams. We have a portfolio services team – consisting of heads of marketing, recruitment, finance and legal – who support our companies in their respective functional areas," said Pandey. His involvement in such a role is evident from the fact that he joins this interview amid a session with a recently invested firm. This would mean that capital-intensive sectors such as manufacturing and infrastructure would not be part of their investor portfolio, any more. Six months ago, the firm took a decision to sharpen focus on two sectors — technology and consumer — that would include small software start-ups in IT and ITes sectors, application developers, e-commerce companies and FMCG companies.

Pandey said this would make them more focused investors, as opposed to their earlier philosophy where they were investing in all sectors except infrastructure. “Our investing objectives, approach and philosophy continues to remain the same as earlier. I do think we are more focused on certain sectors, especially consumer and technology, than in the past. Of course, we do define consumer in a broader sense and include sectors like healthcare and education within the consumer space.”

This decision by Sequoia Capital India was taken soon after its founding managing partners decided to return to run their original fund, WestBridge. Since then, Sequoia Capital India has announced a few investments — Prizm, Druva, K12 Techno Services and Glocal Healthcare Systems among others, along with other VCs.

PARTING WAYS
In fact, many say, it is the difference in investing philosophies that made both firms go for the headline grabbing split in February. Westbridge Capital founded by Sumir Chadha, K P Balaraj, Sandeep Singhal and S K Jain, wanted to go for investments in the secondary market and pre-IPO placements, while Sequoia wanted to stick to traditional venture capital investments.

WestBridge founded in 2000 was merged with Sequoia in 2006. By then, WestBridge had rasied two funds and was managing investment worth $350 million. Post the merger, the firm raised three more funds and took the total funds under management to over $1.8 billion. Back then, Sequoia was one of the earliest Silicon Valley VCs to have entered India.

Post the recent split, WestBridge, within six months, has managed to raise funds worth $500 million. Meanwhile, Sequoia has two funds, an early stage fund of $300 million and a growth fund of $725 million. Of these, the early stage fund is 75 per cent invested and the growth fund has been utilised by about 40 per cent.

Sequoia said it was a well managed parting. “We completed the management transition news announcement within a 48-hour time span. We were very particular that our portfolio entrepreneurs, our LPs and employees heard the news first from us. We made sure there were no unnecessary rumors or apprehension related to this news,” said Pandey.

Sequoia decided to retain the board members of investee companies, irrespective of whether they belonged to WestBridge or Sequoia. As many as 20 companies in which Sequoia was the investor, had its former partner’s still on board.

“Most of our portfolio companies will continue to be serviced by our current Sequoia Capital team. The WestBridge partners serve on a board of a small sub-set of companies in our portfolio; this has been done to ensure continuity for these entrepreneurs. The WestBridge partners on these boards are Sequoia Capital nominees and work with the current Sequoia Capital partners to continue to add value to these companies.”

For many investee firms the announcement came as a surprise. “We came to know of the development as it happened and hence, we did not have much room to react. I knew the team from their WestBridge days. Rather, Sandeep himself informed me of the development. But frankly nothing much changed. The person continues to be on the board and so does the Sequoia team,” said a CEO of a company that plans to hit the public market soon and has investment from the fund.

The only part that took more time to sort out included firms that were invested after WestBridge was merged with Sequoia. Interestingly, when WestBridge did merge with Sequoia it still had some dry powder for investment. While it took time, the portfolio management had been sorted out. Of the 50 investee firms there were only two which preferred to work with the WestBridge team.

With one of the toughest splits behind, Sequoia now is back on its initial investment strategy. It made six investments since the split and is working on some more helping investee companies come up with alternate fund raising plans in times of uncertain public markets.