Is Asia ready for Sequoia’s perpetual fund model?

It’s one thing for a VC firm to say that the 10-year fund cycle – the typical time period a fund has to invest and make returns – has become obsolete, but it’s quite another matter when the firm in question is Sequoia Capital.

Roelof Botha, a partner at the startup investment giant, penned an essay last October announcing the company’s “boldest innovation yet” – The Sequoia Fund.

Instead of a 10-year window for VCs to invest and ultimately return capital to their limited partners (LPs), the Sequoia Fund offers an “open-ended liquid portfolio” in a selection of Sequoia-backed companies. This means LPs can participate in a company’s fundraise at any time from inception to IPO and beyond.

This is a sea change in Sequoia’s modus operandi, but as Botha wrote, the model is currently limited to its businesses in the US and Europe. For the time being, it excludes the firm’s operations in India, China, and Southeast Asia, where its portfolio companies include the likes of Gojek, JD.com, and Oyo.

It’s unclear why Asia is currently excluded or what the plan is moving forward (Sequoia India declined to comment). But based on conversations with VCs across Southeast Asia and India, one explanation is that Asia’s startup scene simply isn’t ready for a perpetual or longer-term funding model.

“Our ecosystem is so young,” says a representative from a venture capital firm that invests in Southeast Asia, who spoke on the condition of anonymity.

Impatient capital, impermanent companies?

It’s worth noting that evergreen funds, which go on indefinitely, do exist.

“In many ways, large family offices and endowments are evergreen funds,” says the venture capital representative who asked to remain anonymous. “The main difference is just that it’s Sequoia that’s the fund manager now.”

It’s similar to how SPACs, which use the same methods as reverse mergers or backdoor listings, are merely a new name for an old concept.

At the same time, however, the perpetual fund model that Sequoia is proposing – at least for now – is foreign to venture capital. In his essay, Sequoia’s Botha pointed out how perpetual funding would remove the “rigid” and “artificial” 10-year funding horizon that has been used since the 1970s, a model that Botha described as “the business equivalent of floppy disks.”

Exposure to venture investments means the promise of larger gains.

“For me personally, [the new fund model is] not revolutionary – it’s evolutionary,” said Michael Blakey of Cocoon Capital in an episode of Unreasonable, a podcast he co-hosts with fellow investors Hian Goh and Vishal Harnal. “I think the one thing they’ve said that I think is really true is that nobody has really looked at how to change the VC model.”

Harnal, who is a managing partner at 500 Southeast Asia, added that the 10-year cycle may have been based on how long it took to take a company public back in the 1960s or 1970s – when venture capital was born.

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