Key Takeaways

  • Sequoia Capital is executing a major retrenchment: shutting its London outpost, ending its famous scout program, and dismantling its evergreen fund structure.
  • Jason Lemkin argues that abandoning evergreen holding vehicles abandons venture capital's best compounding engine: holding generational winners like Nvidia through public markets.
  • Rory O'Driscoll points out that Sequoia launched the evergreen vehicle in 2022 right before public tech stocks plunged 30 percent, trapping limited partners in illiquid, declining positions.
  • The panel points to Founders Fund as the winning model: running a lean US partnership that stays diversified early but concentrates massive checks into late-stage winners.

The Disagreement

For decades, venture firms distributed public shares to their limited partners as soon as lockups expired. In late 2021, Sequoia broke that mold by establishing a single evergreen structure. Now, Sequoia is reversing course: unwinding the evergreen fund, shutting its London office, and ending its scout program to consolidate power back in Silicon Valley.

Jason Lemkin argues the decision to dismantle the evergreen fund abandons the single greatest wealth-generation mechanic in technology. Lemkin asks, “What what the hell happened there? Why the hell we winding down the evergreen fund? It's the notwithstanding a few bumps this week with Jensen. What if they'd held all their Nvidia stock till today, right? That'd be a good one.” (play from 2:05)

To Lemkin, the math is undeniable: tech winners compound far longer than a standard ten-year fund life allows. Selling early leaves billions on the table.

Rory O'Driscoll counters that the math collapses once you introduce real-world limited partners and bad market timing. O'Driscoll explains, “The first problem is they picked a horrible time to do it because they implemented in 22 23 which was when stocks actually turned down and over 20 years that doesn't matter but if you decide to make everyone hold stocks and then a year later they go down 30% it hurts.” (play from 3:32)

When a venture fund forces its investors to stay in public equities during a tech rout, LPs cannot rebalance their portfolios or pay out capital calls elsewhere. The structure created deep LP revolt.

Who's Right (and When They're Wrong)

Both men are looking at the same chart from different seats. Lemkin is mathematically correct about returns, while O'Driscoll is right about fund mechanics.

As O'Driscoll concedes, “It's arguably almost always true that if you hold a diversified portfolio of really interesting tech assets, over the long term, they have compound well above any kind of S&P return.” (play from 3:10) If a firm manages its own permanent balance sheet, Lemkin's strategy wins every time. But venture firms manage money for university endowments and pension systems. Those institutions have specific cash flow obligations. Forcing them into an illiquid public stock wrapper destroys the core trust between general partners and limited partners.

Sequoia's simultaneous retreat from London and its scout network reveals an even harsher operational truth: empire building failed. As Harry Stebbings notes, “I think bluntly what they're saying is Europe does have great assets but we feel we can sufficiently cover it from the states.” (play from 7:22)

Sprawling regional offices and armies of scouts diluted the core partnership's focus. O'Driscoll points to Founders Fund as the alternate playbook that beat Sequoia's global expansion: “You have to be somewhat diversified early on, but you have to be widely concentrated later on. So, and I think Founders Fund do a really nice job of doing both.” (play from 11:50) A tight, concentrated team writing huge checks from home base outperforms fifty scouts hunting across Europe.

What to Do With This

Audit your cap table this week to see who controls your equity for the next five years. Ask your lead venture investors point-blank whether their fund structure permits them to support your late-stage rounds or if their internal mandate requires distributing your shares the day your IPO lockup lifts. If your lead investor runs a ten-year vehicle that is already seven years old, start building relationships with concentrated balance-sheet investors like Founders Fund who can write follow-on checks without rushing for an exit.