Sequoia Capital’s Evolving Investment Strategy: Why Reputation Matters for Tech Start-Ups and VC Firms
Sequoia Capital, a name synonymous with success in Silicon Valley and start-up culture, has not just funded some of the world's most iconic and innovative companies but has also continuously adapted its business model to remain a leader in venture capital (VC). The
Founded just over 50 years ago, it’s investments in companies such as Apple, Google, and Airbnb, has established Sequoia as a pioneer in supporting innovative ventures through financial capital, strategic guidance, and reputation lending.
Sequoia’s business model is one where they take a hybrid investment approach, combining both public and private investments through an evergreen fund structure. They don’t just invest in early stage and promising innovative companies, where most of the risk lies, but keep investment in post-IPO positions. They take a long-term approach, balancing high-risk, high-reward investments strategy with the companies they commit to.
As The FT highlights in this film, the firm has dramatically overhauled its investment structure to support start-ups through long-term, flexible investment strategies. This approach is being copied by other VCs, corporate venture capital firms and investors.
This evolution sheds light on the changing dynamics of venture capital and the value such firms bring beyond capital alone.
Sequoia Capital’s Unique Business Model
Sequoia has shifted away from the traditional 10-year fund life common in the VC world to a more flexible ‘evergreen’ model, comprised of two interconnected parts: the Sequoia Fund and a series of sub-funds.
The Sequoia Fund invests in publicly traded companies, while the sub-funds focus on investment stages such as seed, venture, and growth. The proceeds from the sub-funds flow back into the main fund, creating a self-sustaining cycle that allows Sequoia to maintain its holdings longer than typical VCs. This structure positions Sequoia as a “crossover investor,” enabling it to support companies before and after they go public.
The new model also benefits limited partners (LPs), offering them more flexibility, as they can opt in and out more frequently than in a typical fund. This approach contrasts sharply with the traditional VC model and reflects Sequoia’s intent to act more like a long-term partner than a short-term financial backer, which is why, for many start-ups, getting investment from Sequoia is seen as success even before their services or products have seen the light of day.
What Start-Ups Gain from a Venture Capital Backing
When start-ups secure funding from VCs, they gain far more than just capital. Established firms like Sequoia also lend their reputation and credibility, opening doors to further investment and attracting top talent.
The backing of a reputable VC serves as a seal of approval, signalling to the market that the start-up has strong potential.
Beyond perception and a growing private reputation, VCs like Sequoia and others provide:
Strategic Guidance: Advice on navigating market dynamics, scaling, and accessing new markets. Critical as a company scales, looking for future funding rounds and a potential future IPO.
Network and Connections: Access to other investors, partnerships and potential clients. Imagine being plugged into a network of companies that is supported by a VC. The value of relationships is often difficult to quantify but can create a path for growth.
Operational Support: Assistance in building teams, structuring operations, and implementing business processes.
Long-Term Vision: Support that goes beyond short-term profitability, focusing on sustainable growth.
Corporate Venture Capital (CVC): What They Bring to the Table
For years, because of the success and growth of technology, digital and social companies and the investments made into them by VC, they have been getting all the kudos and headlines. Yet, CVCs also have a part to play in innovation and creating businesses and growth. Companies and their CVC vehicles, such as Google Ventures and Intel Capital, Samsung Ventures or Woven Capital, provide funding, industry expertise, and operational know-how.
CVCs are often positioned to offer specialised support, including technical resources, industry insights, and strategic alignment with corporate objectives. They can also provide a start-up with a unique blend of capital and industry-specific guidance, helping to integrate emerging technologies into the parent company’s ecosystem.
CVCs can also tap into their corporate’s supply chain to gather expertise with which they support a company they invest in.
Over the last ten years, we have seen an increase in capital ‘pouring’ into ventures, specifically corporate ventures. Additionally, compared to 10 years ago, we see CVCs created by companies and corporations surviving longer, and companies they’re investing in are less likely to go bankrupt. In summary, if you get funding from a CVC and have gone through their due-dilligence’ you are more likely to succeed.
Reputation as a Strategic Asset
One of the most valuable contributions of a VC or CVC is the reputation they lend to the start-up. Reputation is a magnet for top talent, partnerships, and further capital.
Start-ups backed by reputable investors are more likely to succeed, as credibility lowers the perceived risk for other stakeholders.
In a landscape where success often hinges on trust and perception, the reputational capital of a Sequoia, Andreessen Horowitz, or Toyota’s Woven Capital or Samsung Ventures can make a significant difference.
Reputation influences investor confidence and can significantly impact a start-up's valuation at various funding stages.
Independent data from Aurelia Ventures show that start-ups with a strong reputation and trusted founding teams tend to achieve 10-20% higher valuations in early funding rounds, such as Seed and Series A, than those with weaker reputations. For example, the median pre-seed and seed valuations for companies with solid reputational backing were around $15 million in 2024, compared to approximately $12 million for their peers.
Reputation is also pivotal in later-stage valuations, particularly in Series B and beyond. Companies with a strong track record and positive market perception could maintain higher valuations, around $117 million, in 2024, even when broader market conditions were challenging.
Moreover, confidence, backing from the right investors in previous rounds and a strong reputation lowers the cost of capital and can attract more investors, enabling start-ups to raise capital at less diluted terms, providing more resources for growth and stability.
5 Tips for Start-Ups Seeking Funding:
Capital is critical, but don’t forget to invest in establishing your reputation: Choose investors who bring credibility and have a track record of building successful companies. The right backer can influence perceptions and attract talent, clients, and additional funding.
Look for Strategic Alignment: Ensure your vision and the investor’s strategic priorities are aligned. Misalignment can cause friction down the road, especially when scaling.
Understand the Investment Structure: Different funds (seed, venture, growth) offer varying levels of support. Make sure to align your fundraising with investors whose fund structure and focus match your stage of development. Always consider who you want on your Board and what they can bring to the table.
Evaluate Support Beyond Capital: Assess what value the investor adds—whether it’s operational guidance, strategic insights, or industry connections. Consider a hybrid approach of support. VCs and CVCs do and can work together for your and their individual benefit.
Be Transparent About Expectations: Set clear goals and timelines to manage expectations on both sides. If a VC operates on a 10-year cycle, ensure your growth trajectory aligns, or consider firms like Sequoia that offer longer-term support.
This approach to fundraising will help ensure that a start-up’s partnership with investors is built on shared values and mutual long-term growth objectives.
The future
Looking into the next ten years, the VC and CVC landscape is on the cusp of change. Experience from the past is influencing investment strategies. Business models are being adapted. Many are now looking for long-term, strategic partnerships where they can leverage more than just capital.
Start-ups should carefully evaluate potential investors for strategic alignment, sector expertise, and long-term commitment. Meanwhile, VC and CVC firms need to be nimble, anticipate emerging trends, and adapt their fund structures to remain competitive in a rapidly changing world.
CVCs are expected to play a more significant role in the start-up ecosystem, not just as capital providers but as strategic partners that can leverage their own knowledge, IP and stakeholder network. Many corporates view CVC investments as a way to secure a front-row seat in technology innovation and potential acquisition targets.
CVCs will increasingly focus on strategic alignment for their corporates rather than purely financial returns for their CVC, making them critical partners for start-ups in sectors like healthtech, AI, and industrial automation.
Emerging markets in Asia, Africa, and Latin America will become increasingly attractive, offering new growth opportunities for start-ups and investors. An example is Sony Ventures' investment of $10 million in Africa to create ‘Sony Innovation Fund: Africa’, an initiative to support the growth of the entertainment businesses in Africa. Their long-term view is the opportunities that will be there thanks to increased internet penetration and mobile adoption. VC and CVC firms will focus on funding innovations tailored to these regions, such as fintech solutions, e-commerce platforms, and mobile-first services.
The rapid pace of technological advancement means that today’s cutting-edge technologies can become obsolete quickly. Investors must stay ahead of trends, backing flexible and adaptive start-ups that can pivot and innovate as new tech and market shifts arise. Additionally, investors will face increasing pressure to consider their investments' environmental and social impact. This will necessitate a change towards funding start-ups incorporating sustainability and social impact into their business models. Reputations here matter, not just for start-ups but also for investors.
Start-ups and investors both need to be nimble and agile. They need to anticipate emerging trends and create trust and reputation at pace to give the market and prospective users confidence that will deliver growth.
Sequoia has been nimble, but now is the time to leverage reputation as a deliverable that can help derisk their prospective future investments.
If you are an investor, an adviser, or a start-up, then get in touch to find out how we can help establish your trust and reputation so that your venture can secure growth.
