Silicon Valley's most prominent VC firm had a banner week: $9 billion in IPO shares while helping TikTok negotiations

Even by Sequoia's standards, this was a crazy week. 

The 48-year-old venture capital firm, long the envy of its Silicon Valley peers because of early bets on Apple, Cisco, Google, LinkedIn, WhatsApp and Zoom, just wrapped up a five-day stretch that, for many rivals, would mark a strong five-year run.

Sequoia has an 8.4% stake in Snowflake, which had the biggest software IPO ever, and is the largest owner of gaming company Unity. It also owns shares in Sumo Logic, which debuted on Thursday.

Sequoia's holdings in those three companies are worth about $9 billion as of Friday's close.

And then there's TikTok. The social media app owned by China's ByteDance is under pressure by the Trump administration and facing a potential U.S. ban this weekend. Sequoia, which launched a China operation in 2005, is an investor in ByteDance and has been helping the company navigate its options.

Sequoia partners surely wouldn't have predicted this level of activity six months ago, when the firm sent around a memo to portfolio companies warning them of the potential financial impact of the coronavirus. Sequoia urged start-ups at the time to pay close attention to their cash positions, warned them that financing activity could "soften significantly," suggested that customer spending may drop and said it was time to examine whether they could "do more with less" when considering headcount. 

The memo wasn't completely off target. Covid-19 has ravaged much of the U.S. economy, and many start-ups reliant on travel, hospitality and entertainment have been forced to shutter or downsize dramatically. Two of Sequoia's big bets, room-sharing site Airbnb and scooter company Bird, made major job cuts as demand plunged.

But the historic week Sequoia just closed out provides a glimpse into the kinds of businesses that are surging during this era of forced remote work, even with unemployment hovering near double digits. It also underscores Sequoia's ability to more than offset challenges in its portfolio with multibillion-dollar wins.

Many firms have their day in the spotlight, hitting on a couple big exits in a year followed by a lull. Not Sequoia. Anand Sanwal, CEO of tech industry research firm CB Insights, pointed to a survey his company performed in 2016, asking VCs which venture fund they would invest in, other than their own, if given the opportunity. 

"The #1 firm by a significant margin was Sequoia," Sanwal said in an email. "Their wins with Unity, Snowflake, Sumo Logic serve as more evidence of them being exceptional investors."

Sequoia invests at all stages with different funds, sometimes getting in on the ground floor and other times pouring in growth capital ahead of an IPO.

Snowflake was a later-stage deal from the growth fund, but still accounts for the firm's biggest windfall among the three IPOs this week. The company more than doubled in value in its debut on Wednesday and closed the week with a market cap of $66.4 billion, valuing Sequoia's stake at almost $5 billion. 

Sequoia first backed Snowflake in 2018, and over a two-year period invested a total over $271 million. Carl Eschenbach, a partner at Sequoia, said in a press release at the time of its initial investment that the company had "truly disrupted the data warehouse market" and called it a "key enterprise solution for the public cloud." Revenue increased more than 130% in the first half of the year, as more big customers came to rely on cloud data tools instead of those tied to machines in their data centers.

The firm's relationship with Unity is very different, but the video game software maker is another example of a business that's powering through the coronavirus epidemic. Consumers stuck at home are playing more games, and Unity benefits from having software that lets developers build for all platforms through a single set of code. The company said in its prospectus that it's seeing "higher levels of end-user engagement as a result of COVID-19 shelter-in-place orders."

Sequoia led the first venture round in 2009, when the company was five years old and had just recently moved into mobile game development. Led by Roelof Botha, Sequoia first invested out of its main venture fund and continued putting in capital over the next decade, with later money coming from its growth funds.

By the time of Unity's IPO, Sequoia had amassed a 24% stake and remained the largest shareholder. After Unity's shares jumped 31% in their first day of trading on Friday, Sequoia's 57.5 million shares were worth $3.9 billion.

In an interview on Friday, Unity CEO John Riccitiello said that Botha is "one of the first calls I make when I'm vexed with something and facing a challenging decision." 

"There's no surprise that they're in the middle of everything that's important," Riccitiello said of Sequoia, adding that Botha's birthday is this weekend and he plans on giving him a call.

In between Snowflake and Unity was the Thursday debut of Sumo Logic, a cloud data analysis company, which closed the week with a market cap of $2.5 billion. Sequoia led a $30 million round in 2014, headed by Pat Grady.

Relative to some other bets, Sumo Logic is a small one for Sequoia. The firm's name isn't in the prospectus, meaning it owns less than 5% of the shares. Still, the stock price is up about five-fold from what Sequoia paid. 

Heading into this week's IPO bonanza, Doug Leone, Sequoia's lead managing partner and a 32-year veteran of the firm, was dealing with a completely separate matter involving the tense standoff between Washington, D.C., and Beijing. 

In early August, President Trump issued an executive order banning U.S. transactions with TikTok in 45 days, amid concern about Chinese government's access to the app's data on American consumers. The Commerce Department announced Friday morning that it will impose the ban on Sunday, though a deal to keep it running could happen before then.

Sequoia has a significant financial interest in a positive outcome. The firm invested in ByteDance in 2014 at a $500 million valuation. The company is now reportedly worth over $100 billion, and TikTok is a big reason why. It's a top five app on iOS and the Google Play store, with more than 100 million people in the U.S. using it to create and watch short videos. 

Over the past six weeks, Leone and a team at Sequoia, along with some of ByteDance's other U.S. investors, have acted as liaisons between the company and the U.S. government and have helped explore potential solutions to avoid a shutdown, according to a person familiar with the matter who asked not to be named because the discussions were confidential. The Washington Post and Wall Street Journal previously reported on Sequoia's involvement in the process. 

The drama has pulled in some of the biggest U.S. companies. Microsoft, Google, Walmart and Oracle all emerged as potential buyers of TikTok so that the operation would be based in the U.S. More recently, Oracle had planned to become a technology partner for TikTok, hosting the data on its cloud, while taking a stake in the company. To address ownership concerns, ByteDance would spin off TikTok through an IPO on a U.S. stock exchange, according to people familiar with the matter.

Whatever happens with TikTok, Sequoia is generating plenty of money for its limited partners to justify the more than $7 billion it raised earlier this summer for funds in the U.S., China and India.

Meanwhile, one of its key competitors in the late-stage financing market has retrenched. SoftBank's Vision Fund racked up massive losses because of the near-collapse of WeWork late last year and struggles at companies like Indian hotel chain Oyo and construction start-up Katerra.

The Vision Fund has bounced back in recent months with the recovery in the broader market, helping SoftBank swing to a profit in the latest quarter. Still, the turmoil from 2019 has forced SoftBank to pull back from writing big checks even as Sequoia remains as active as ever.

Sequoia didn't make any partners available for this story.

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