[Posted on April 16, 2008 - 7:25 PM]
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DiggLast fall, when lawmakers were mulling legislation to raise taxes on private equity firms and hedge funds, venture capitalists took pains to distance themselves from their financial cousins.
"We are making distinctions between the long-term nature of venture capital investment versus the shorter-term economics that the other funds employ," said Emily Mendell, vice president of strategic affairs and public outreach for the National Venture Capital Association, in September in response to proposals on Capitol Hill to raise tax rates on so-called carried interest. "We have a unique argument--we don't do arbitrage, we don't do financial engineering. We make assets from nothing; we build companies."
Now comes word from Private Equity Hub, citing undisclosed sources, that Sequoia Capital, the leader of the VC pack in Silicon Valley, is ramping up to launch a $750 million hedge fund and has recruited Eric Upin, formerly a star analyst with Robertson Stephens and Wells Fargo Securities, to manage it.
A representative from Sequoia was not immediately available for comment.
From a public relations perspective, it would be curious timing for Sequoia, with Wall Street still pouring blood from its self-inflicted wounds, to start dabbling in hedge funds. Perhaps more than any other type of investor, venture capitalists have remained unstained by the financial crisis, although fundraising has slowed of late.
On paper, Upin also doesn't look like an obvious candidate to lead what would be a high-profile initiative at Sequoia. He does have some buy-side experience, having most recently managed Stanford University's endowment. But most of his professional career has been spent in the bowels of equity research, where he earned a reputation as one of the top analysts covering enterprise software, business services and other tech sectors. He also did a stint as a consultant at Booz Allen & Hamilton.
Of course, hedge funds come in many flavors (including the buy and hold kind), and presumably Sequoia wouldn't dip its toe in the business by flinging investor money at Ecuadorian gold mines. More to the point--and despite the NVCA's equivocations--the lines between asset classes have been blurring for years, making it increasingly difficult to differentiate VC, PE, PIPE and other types of financing. Until the recent investment pall, meanwhile, many large, late-stage venture rounds included money from hedge funds. Then there are players such as Technology Crossover Ventures, with $7.7 billion under management, which has for years mixed traditional VC plays with public market investing. And of course private equity firms such as Silver Lake and Francisco Partners have long focused on tech.
Still, Sequoia isn't your average venture firm. VC blue-bloods such as Michael Moritz and Roelof Boetha and a history of splashy exits have made it an industry bellwether. If Sequoia really is jumping into hedge funds, other VCs will be be tempted to follow suit. Their "unique argument" would look all too common. -- Alain Sherter
See 2007 story on NVCA's position on carried interest from TheDeal.com
See April 15 post on Sequoia hiring Eric Upin from peHUB
See April 15 post on Q1 VC fundraising from Tech Confidential
