As it prepares for a slower investment environment, Sequoia Capital has reduced management fees in its two most recent startup funds, according to partner Alfred Lin.
Limited partners (LPs), who contributed money to Sequoia’s crypto and ecosystem funds, which were launched early last year, are now able to pay management fees based on the capital actually deployed, as opposed to the standard model of capital under management that applies to other Sequoia funds. This change in fee structure was announced to investors in December.
Sequoia launched a $950 million ecosystem fund to back funds managed by others, including scouts and those launched by Sequoia network, and a $600 million crypto fund to invest in crypto companies and tokens. Thus far, 10% of the crypto fund has been deployed.
The move symbolizes an unusual concession by the world’s top venture investor after U.S. venture capital deals cut down from their 2021 peak by 31%. Sequoia’s longstanding relations with LPs have been put to the test by the plunge in valuation in tech companies and the fallout in its portfolio company FTX.
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On Thursday, speaking at the StrictlyVC event, Lin defended the firm’s due diligence, saying it had launched internal processes that concluded substantial research, and due diligence had been done on FTX.
“We were misled for a variety of situations,” said Lin.
The U.S. Securities and Exchange Commission (SEC) has made inquiries into the due diligence processes of some investors in FTX.
Sequoia marked down its investment in FTX, including $150 million out of its third Global Growth Fund and $63.5 million into FTX and FTX US from its crossover fund to zero. Lin stated that the firm remained committed to crypto investment.
“We will invest through a slower time but we will also continue to advance. We are a long-term optimist in crypto and in a variety of other sectors,” said Lin, who also led the investment in Citadel Securities and Instacart.