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Sequoia Capital: Sequoia postpones close of $2.8 bn India, SEA fund amid probe into portfolio firm

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Bengaluru/Mumbai: Sequoia Capital has postponed the closing date of its $2.8 billion India and Southeast Asia (SEA) fund on the back of alleged financial irregularities and corporate governance misses at some of its portfolio firms, people in the know said.

The move was communicated to Sequoia’s limited partners (LPs), or sponsors in the fund, through an email. ET has reviewed the contents of the email.

“All LP subscription documents have been received. However, during the past weeks, shareholders in a company portfolio have received information about a potential misconduct, requiring investigation. Given these events, we have decided to postpone the close date of the Funds. We will provide you with an update when our work is complete,” it said.

Sequoia also thanked the LPs for their participation in the India and Southeast Asia funds – SC India Venture VIII, SC India Growth IV and SC SEA I.

“.. apologies for any inconvenience but we want to be extra cautious for everyone’s benefit…,” it said in the email.

Sequoia’s LPs are typically US university endowment funds and blue-chip pension funds.

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According to a person briefed on the development, Sequoia’s largest fund for the region will likely close by the end of the calendar year.

“In April, Sequoia’s LPs had committed capital for the new fund. However, a new development occurred which needs to be disclosed to them…,” another person added.

The storied Silicon Valley venture capital firm, which is an early backer of unicorns such as Byju’s,

and Oyo, had already received commitments of about $2.8 billion for its three different vehicles spread across venture, growth and SEA, sources in the know said.

This is Sequoia India’s largest corpus to back startups across India and SEA,
doubling from its 2020 size of $1.35 billion, which was split between a $525 million venture fund and a $825 million growth fund.

Sequoia Capital did not respond to ET’s queries till press time Tuesday.

“In the current environment, limited partners are asking more questions than ever to investors and questioning the role of funds at the board of these companies… The bottom line is what are investors doing with their diligence by being on the board of these young age companies,” an investor who did not want to be named said.

In the letter, Sequoia did not disclose the name of the company being “investigated”, but sources said it could be referring to Singapore-headquartered business-to-business (B2B) fashion e-commerce startup Zilingo.

Zilingo’s Indian founder, Ankiti Bose, was suspended from the company in April after alleged discrepancies in its accounts, which were discovered during a due diligence process before a new funding round at the firm, sources said.

Bose had
disputed these allegations and contested her suspension.

She has previously
called the company’s action a “witch hunt”, which she hinted was triggered by harassment complaints that she had raised against an investor. Bose was a former employee at Sequoia Capital India.

Since early this year, Sequoia’s portfolio companies, including fintech firm BharatPe and social commerce startup Trell, as well as Zilingo, have undergone internal audits on charges of financial fraud and corporate governance lapses.

In January, New Delhi-based merchant-focussed fintech firm BharatPe’s cofounder Ashneer Grover became embroiled in a major controversy after an expletive-laden audio clip featuring him and a

employee went public.

The matter escalated over the next two months,
leading to the exit of Grover and wife Madhuri Jain, who was the head of controls at the firm. BharatPe was last valued at $2.8 billion. Sequoia holds a 19.6% stake in the firm.

On April 4, ET reported citing sources that Sequoia had called for a
probe at Trell after receiving whistle-blower complaints. The Zilingo episode came to the fore soon after.

In a blog post last month addressing the corporate governance issues in its portfolio companies, Sequoia said that the startup ecosystem needed guardrails so that a few errant founders do not create setbacks for all.

“It is easy to think of this issue as ascribed to poor due diligence. But let’s remember that when investments are made at seed or early stage there is hardly a business to diligence. Even later stage investors can face negative surprises, post investment, if there is wilful fraud and intent,” the blue-chip venture capital fund said on April 17. “We will continue to respond strongly when we encounter wilful misconduct or fraud,” it had said.

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