Sequoia Capital, one of Silicon Valley’s most famous venture capital firms, is raising a new fund that could be in excess of $US6 billion (£4.5 billion), according to a Recode report on Wednesday.
The fund is reportedly being raised to help Sequoia compete with Japanese tech giant SoftBank, which announced a huge new $US100 billion (£75 billion) fund last year that is now being used to back promising tech companies worldwide with tens or even hundreds of millions of dollars.
Founded in 1972, Sequoia has become a household name in the Silicon Valley VC community after backing companies like Apple, Google, and Instagram in their early days. But SoftBank’s new fund, which is run out of an office in London’s Mayfair, makes Sequoia and other US tech funds look minuscule.
The Vision Fund is significantly larger than any other tech fund on the planet. Backed by companies like Apple and Sharp, as well as Saudi Arabia’s sovereign wealth fund, the Vision Fund is basically 10 times as big as the big Silicon Valley funds.
Citing sources familiar with the matter, the Recode report states that several other US VC firms are looking to raise big new rounds of a similar size to the one SoftBank is looking to raise. Many of them reportedly feel pressure to raise more capital.
While the US VC houses don’t appear to be raising funds anywhere near the size of SoftBank’s Vision Fund, it’s possible that they will work together on deals in a bid to convince founders to take their money instead of or alongside SoftBank’s.
Venture capitalists across Europe are “baffled” and “bewildered” by the size and frequency of the tech investments being made by SoftBank.
Speaking to Business Insider earlier this year, Mark Tluszcz, the CEO of Mangrove Capital Partners, which made $US200 million (£140 million) from a $US2 million (£1.4 million) early investment into Skype, said some of the world’s best known VC funds are concerned they will be priced out of new startup funding rounds.
He added that they fear they won’t have the same levels of capital to back the best startups over a sustained period of time. That essentially means they will be left with a less valuable stake in the company when it exits.
“Now they’re no longer the big boys on the block and they’re going to have to adjust themselves,” said Tluszcz. “It’s going to drive up prices and they’re moaning about it.”
Tom Hulme, a general partner at GV, formerly Google Ventures, told Business Insider in an interview earlier this year: “To [SoftBank’s] credit, they seem to be placing some very specific large bets and investing in public companies as well, which is very interesting.”
He added: “I think strategically ARM is a very interesting investment. We’ve tracked Improbable for a long time and think the idea of simulation-as-a-service is a really interesting investment. So it’s going to be fun to watch it because the approach is so different to what the market is used to. I’m optimistic and excited to see how it plays out. I think net-net it will be a good thing for the ecosystem.”