Why VC Firm Sequoia Broke With Tradition To Put Down Roots In Europe’s Startup Scene

When Klarna cofounder Sebastian Siemiatkowski heard venture capital firm Sequoia’s pitch a decade ago, he was “blown away.” Here was a famed Silicon Valley investor behind the likes of Apple, Google and YouTube visiting his payments startup all the way in Stockholm – to sell him on their help. But Siematkowski didn’t want to seem too easily wooed. “If we’re really the next Google, why isn’t the whole partnership here? Why is it only you who flew?” he asked Sequoia’s partner in the room at the meeting’s end.

Klarna’s CEO watched the investor get in the elevator. The door closed. Thirty seconds later, his phone rang. It was Sequoia’s billionaire leader at the time, Michael Moritz. “He’s like, ‘I’m super sorry I couldn’t make the meeting,’” remembers Siematkowski. “‘If Sequoia is allowed to invest, I’ll be on the board.’” This past September, Klarna reached a valuation of $10.65 billion valuation, making it the highest-valued private startup in Europe. Moritz is still a director on its board.

That emerging success – as well as the recent IPO of video game development platform Unity Software, a $10.2 billion valuation for robotic process automation business UiPath and more – help explain why today, the VC firm well-known in the U.S., China and elsewhere has finally planted European roots. What was once a fly-by destination is now the home of Sequoia’s first non-Californian office for its flagship venture funds, anchored by a Midas List Europe investor lured away from a top local rival and with plans to expand in 2021.

With just three staff announced so far, Sequoia’s London office is small. But its symbolism goes beyond its headcount, both for the firm and Europe’s broader tech ecosystem. Firm leader Doug Leone notes that through the 1980s, Sequoia was known for a rule established by its first partners: if we can’t ride a bicycle to it, we won’t invest. That position worked in finding Apple. It’s increasingly likely it won’t for finding the next. “We’re not interested at Sequoia in partnering with a company that does a $1 billion IPO and over 20 years grows to $2 billion,” Leone says. “The interest is to find important market leaders. And more and more, we’re starting to see them come out of Europe.”

Investors and entrepreneurs in Europe’s tech hubs have seen Sequoia investors on the ground to visit startups more in recent years, part of a wider trend of U.S.-based firms pursuing deals more aggressively on the continent and in the U.K. When Atomico partner Hiro Tamura, a London-based investor, visited Germany the week before Covid-19 lockdowns began in March, he heard a delegation of five partners from Sequoia were there at the same time. Growth-stage-focused Sequoia investor Matt Miller says the firm would typically cram 40 to 50 meetings with companies into any one trip.

But while Sequoia was able to fight its way into hot European deals, it backed apparent winners later than its partnership might’ve liked, meaning it wasn’t getting as high a cash return back even when it bet right. One example: Graphcore, a British startup making chips for artificial intelligence use cases that is valued at about $2 billion today. Sequoia found the company just after it had raised its Series B funding round; CEO Nigel Toon says Miller convinced him to allow Sequoia to preempt its next round, a Series C, just a few months later on the strength of Sequoia’s founder network, which has allowed him to rub shoulders with Google CEO Sundar Pichai, WhatsApp cofounder Jan Koum and Dropbox CEO Drew Houston.

Just those few months meant a difference in Graphcore’s valuation from about $60 million pre-money to $355 million, per data from startup tracker PitchBook. “We hope to see those opportunities earlier,” Miller says. “And we have to be able to give our earlier-stage investments a lot more support.”

Leading Sequoia’s European charge is Luciana Lixandru, No. 20 on last year’s Midas List Europe and a former partner at Accel known for early investments in UiPath, food delivery startup Deliveroo, virtual events business Hopin and visual collaboration software maker Miro. Sequoia met Lixandru through that deal (another it backed relatively late) and another shared investment, security startup Tessian. In March, the firm announced her hire; she started in September following a six-month “garden leave” non-compete period. A more junior investor, George Robson (Sequoia is one of several firms to, confusingly, call all its investors “partners”), has since joined from fintech unicorn Revolut. Most recently, the firm added a third London-based employee: head of talent Zoe Jervier Hewitt, who has worked in a similar role at EQT Ventures and will start in January 2021.

Sequoia plans to add a third investor in the first quarter of next year, too; Miller, whose plans to move to Europe for a few months this year were derailed by the pandemic, plans to spend the summer full-time in London in 2021. “I joke that we’re the only people who are actually signing an office lease and finding office space while everyone is giving up their office,” Lixandru says.

How has the European venture community, mostly congregated in London (Brexit aside) reacted to Sequoia’s moves? Investors at other firms say Sequoia’s setting up shop isn’t much of a surprise, but a point of validation for an ecosystem that has seen the total amount of investment more than double to $43 billion over the past five years, per Atomico’s 2019 State of European Tech report. “It’s a good thing. We take it as an endorsement of what’s been going on,” says Dawn Capital cofounder Haakon Overli. At rival firm Index Ventures, which went the opposite direction opening offices in California after a decade investing in Europe, Midas List investor Jan Hammer says Sequoia’s move reflects the wider range of options European founders now face. “It’s good to see their mindset is changing, but we’re surprised it has taken them quite so long!” Hammer wrote in an email.

Not everyone has rolled out the welcome mat. Lixandru’s former firm Accel prides itself on its own unicorn factory in Europe. Sources with knowledge of her departure process say it was “emotional” and not as amicable as publicly let on. Caught somewhat in the middle was Daniel Dines, UiPath’s billionaire cofounder and CEO, who has taken money from both firms and says he’s on good terms with both. “The Accel folks were a bit upset. But I understand Sequoia’s choice, and I understand her choice,” Dines says. “It’s the opportunity to build the European subsidiary of Sequoia. I think that’s very hard to pass.”

For the move to pay off for Sequoia, the firm will have to manage integrating its European team with the U.S. one eight hours away, as – more like Index and unlike Accel – Sequoia’s London and California partners will invest out of the same fund. The firm’s thinking: European and U.S. companies are more likely to compete sooner as increasingly overlapping markets, Leone says, unlike in China, India or Southeast Asia, where the firm operates independent funds. (Leone says Sequoia has no current plans to open similar offices in New York or Latin America.)

Therein lies the risk: that Sequoia’s London office is slowed down by needing agreement from Sand Hill Road on deals, or never fully integrates as more than a satellite office. But entrepreneurs and investors who spoke to Forbes argue that of any firm, Sequoia has earned the benefit of the doubt to figure it out. “My reaction was ‘finally,’” says Unity cofounder and former CEO David Helgason, now an angel investor in Copenhagen. “There’s something about being close to a place that makes you understand it better than if you’re just connecting with people on Skype.”

   

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