Sequoia Capital, one of Silicon Valley’s most influential venture capital groups, plans to move deeper into cryptocurrency markets, earmarking at least $500mn for investments in digital assets.
The California-based firm announced on Thursday that it had set aside between $500mn and $600mn for a new fund that would primarily invest in cryptocurrency tokens traded on third-party exchanges.
The move forms part of a business-wide restructuring, with a dedicated fund allowing it to play a more active role in cryptocurrency networks, including validating transactions and voting on governance matters.
“The area in crypto where we have the most opportunity for improvement is really in the liquid stuff,” said Shaun Maguire, a partner at Sequoia. “Our founders have asked us for a lot of help there, and we just haven’t been able to deliver in the traditional venture capital model.”
Sequoia’s push shows how big tech investors are increasingly plunging into cryptocurrency markets, seeking the explosive financial returns that have largely gone to enthusiasts and specialist funds.
Hundreds of projects based on ethereum and other digital ledgers have issued digital assets, using them to organise new consumer and financial applications. Tiger Global Management, one of the world’s largest tech investors, made its first token investment in December in the freelancing network Braintrust.
The new fund will allow Sequoia to become a bigger participant in the cryptocurrency projects it backs. One-fifth of Sequoia’s investments in the US and Europe last year went to the cryptocurrency sector, including start-ups such as the $8bn digital asset security company Fireblocks.
Unlike traditional start-ups, many cryptocurrency projects do not have traditional boards of directors, instead distributing tokens that allow users and investors to vote on major decisions.
Sequoia has previously purchased shares and tokens in cryptocurrency projects through its traditional venture funds. The firm’s token investments have included the social media start-up DeSo and the data storage network Filecoin.
Global regulators have recently increased their scrutiny of cryptocurrency groups, sending a chill through the riskiest corners of the more than $2tn market while raising the spectre that many tokens might eventually be classified as securities.
Maguire said Sequoia would apply a “20-year lens” to its cryptocurrency holdings and avoid trading tokens except for “exceptional circumstances”.
“We expect regulation, but there’s a balance that we need to find between protecting consumers and maintaining innovation in a really important space,” Maguire added. “It reminds me of early internet regulation.”
Sequoia announced the fund as part of a restructuring to create a single overarching entity, the Sequoia Capital Fund, that permanently holds investor capital.
The cryptocurrency fund and Sequoia’s flagship funds will distribute their proceeds to the Sequoia Capital Fund, which will allow investors to withdraw capital twice a year after an initial two-year lock-up period.
Sequoia said investors have elected to move 95 per cent of their money to the Sequoia Capital Fund but declined to comment on the size of the fund. The group managed more than $80bn in assets at the end of September, according to regulatory filings.
Sequoia filed to become a registered investment adviser with the US Securities and Exchange Commission as part of the restructuring, allowing it to invest more money in public stocks and cryptocurrencies.
Roelof Botha, one of Sequoia’s highest-ranking partners, said last year the restructuring would mean investments “no longer have ‘expiration dates’”.