Sequoia Is Down Bad
Sequoia Capital still maintains massive public positions in Unity and DoorDash whose stocks have plummeted 80% and 75% respectively from their all-time highs
Two of Sequoia Capital’s largest bets have been cratering on the public markets — yet the firm still holds the vast majority of its original ownership positions.
If Unity and DoorDash’s share prices don’t rebound significantly, Sequoia may have missed out on more than $7 billion in returns.
Those two bets — along with companies like Airbnb and Snowflake — are among Sequoia’s most important portfolio companies.
Unity helped propel Roelof Botha — who was recently appointed to the top job at Sequoia — to number three on the Midas List in 2020.
Meanwhile, DoorDash is Sequoia partner Alfred Lin’s shining investment that helped secure him the top spot on the Midas List in 2021.
Don’t count your chickens before they’re hatched.
In 2021, Sequoia embraced a strategy of holding on to its winning venture capital investments as public companies. Botha, who would become the firm’s senior steward, spearheaded the strategy shift that created “The Sequoia Capital Fund.” The new structure established a perpetual fund where Sequoia can hold companies indefinitely.1
Sequoia stuck to that plan for both game development platform Unity and food delivery company DoorDash. The firm has white-knuckled its shares even as their stock prices have tanked.
At current share prices, Sequoia’s position in Unity today is worth about $1.5 billion and its position in DoorDash is worth about $2.7 billion. So together, that’s $4.2 billion.
If Sequoia had sold its current holdings near the all-time high for Unity and DoorDash, Sequoia could have generated $18 billion in returns. Or more conservatively, if it had sold a year after those companies went public, it would have generated roughly $12 billion.2
Today, based on their most recent filings, Sequoia owns about 70% of its original position in Unity from when it went public in September 2020.
Sequoia owns even more of its shares in DoorDash. The firm owned about 52 million shares of DoorDash at the time of the IPO in December 2020. Today, Sequoia still owns about 79% of that position.
Sequoia almost certainly generated more than a billion dollars already in returns from selling a fraction of its holdings in DoorDash and Unity. But it’s difficult to say how much the firm returned without knowing the prices at which it sold its stock.
Unity, of which Sequoia owned 24% at the time of its public offering, has seen its stock fall 80% from its all-time-high.
Botha sits on Unity’s board and Lin sits on DoorDash’s.
My sense is that these two companies only represent a piece of Sequoia’s problems. Airbnb’s stock is trading below what it traded on its first day as a public company. Snowflake’s stock is down 63% this year.
Meanwhile, Sequoia portfolio company Klarna is reportedly looking to slash its private valuation to $15 billion from nearly $45.6 billion a year ago. Sequoia’s investment in scooter company Bird, which Botha led, is looking dire. Sequoia co-led a round in 2019 that valued the company at $2.5 billion. Bird, which went public via a SPAC, has a market capitalization of $160 million.
Sequoia may have learned the wrong lesson from Sequoia portfolio company Zoom. The company’s stock went soaring on the public markets during the pandemic, sparking envy from early investors who sold. Since then, however, Zoom’s share price has dramatically retrenched. There’s a painful history here too: Sequoia infamously flipped its investment in Apple instead of holding on to one of the best companies in history.
Sequoia is the most powerful and influential venture capital firm in the world. Even rival investors acknowledge that the firm always seems at least one step ahead of its competition. Sequoia is probably hedging its downside exposure in some way to lock-in at least some of its gains.
I, myself, have written triumphantly about Sequoia’s strategy of doubling down on DoorDash aggressively as the company raised massive sums as a private company. I wrote about one of Sequoia’s investments in DoorDash as a startup:
At the time, it looked like Sequoia was doubling down on a losing investment. In retrospect, it was a genius move.
But investing in next-generation startups and pricing public company stocks are very different skills — and Sequoia certainly has much more experience picking early winners.
The massive depreciation in Sequoia’s holdings will certainly ding its reputation for invincibility, though many of its rivals’ holdings simply didn’t have as far to fall.
Analyzing Sequoia’s holdings is particularly convoluted thanks to the introduction of the firm’s byzantine holding structure, “The Sequoia Capital Fund.”
Sequoia’s intention is to slowly transfer its existing public portfolio companies into the fund with the intention of holding shares indefinitely. The new system also penalizes limited partners who cash in their winners by reducing those limited partners’ allocation in Sequoia’s perpetual fund.
From everything I can tell, Sequoia is presenting a proudly determined face about its decision to hold its Unity and DoorDash shares tightly, believing that it sends the message that they are a loyal, long-term investor. The firm’s limited partners might very well be pining for some of the ruthlessness of departing senior steward Doug Leone.4
In May, Sequoia published a presentation warning of a “crucible moment” and positioning Sequoia as an expert in navigating stock market downturns. What the presentation didn’t acknowledge was that Sequoia Capital itself is facing a crucible moment.
The public and reporters are still processing the massive tech correction. But as they do, I think they’ll start to understand that Sequoia has let several fortunes slip away.
Correction: Fixes Bird’s market cap. Removes timing on Sequoia’s Apple sale.
I’m still unraveling the structure. If you want to help out, I believe that in filings the Sequoia Capital Fund is Sequoia Grove Manager LLC, which has been moving public holdings to Sequoia Grove II.
DoorDash and Unity both now trade below their first day trading prices, after many, many months of trading well above them. Unity began trading at $75 a share, climbed to an all-time-high of $196.65, and now trades at $38.80. DoorDash was worth $190 at the end of its first day of trading, climbed to $245.97 and now trades at $65.39.
If Sequoia had sold its current holdings a year after each company’s listing, they would have netted approximately $5.6 billion in Unity and $6.4 billion in DoorDash. That’s $12 billion put together.
The ownership percentage is based on the S-1 filing. But after dilution during the IPO, Sequoia’s ownership may have been more like 15.3% as I reported in my “Story of the Cap Table.”