Jason Calacanis’ Post

Transcript

There are people who are investors in Stripe from Sequoia at a, you know, in a time period I think maybe 2010 ish and it's obviously 14 years later. They've been sitting for 14 years on this investment and they were told they had the best company after Uber and before Airbnb of that vintage. Yet they, you know, haven't had a ton of liquidity. So it looks like Sequoia with some of their other vehicles, which might very much want to buy. Shares of Stripe pre IPO and I think this signals an IPO's coming and that was my big insight here is I think this is a bit of a towel, but Sequoia Capital from their Heritage Foundation, from their heritage fund and from their growth fund, a couple of their different funds, they actually mentioned here, let me put on my serial killer glasses. So we know that each of you has different goals for liquidity and portfolio management. We are contemplating a transaction where new purchasers including the expansion fund Sequoia Capital. And Sequoia Heritage, that's their family office fund. And Sequoia Capital Global Equities will commit to buying up to 861 million of striped shares held in Sequoia funds raised between 2009 and 2012. That what they're calling legacy funds here at the most recent July 2024409 a valuation we explicitly focused on these legacy funds which were organized over a decade ago given the normal 10 year life of the funds. So. Uh, this is, I think the other key point to this, David, is there's massive amounts of qualifiers in this offer. It they're saying they're contemplating this, they're fully disclosing who the buyers are, they're doing the most clear, concise way to value the shares A409A valuation very, you know, legally accounting binding and they're doing it with the oldest funds with a very explicit purpose. They're past their 10 year old lifespan and that the final paragraph if we if we page down there David, I think is worth reading as well. Limited partners of the legacy funds will have the option to hold or sell or portions of their. Eye share. So you have the choice if you're one of these legacy LS to participate in this or not. So you have choice. You have to get educated as the LP is if you want to do this or not. Because the people buying it are expecting and probably a 50% pop I would say by the time they exit and this thing goes public in a year or so. They say we are pleased to offer this liquidity option to you. Has limited partners in the Legacy Funds as each of the Legacy Funds, Sequoia Capital Fund, Expansion Fund, Heritage and SCG ER funds that are sponsored and managed by Sequoia or its affiliates. We are also seeking your consent to proceed with the transaction and to make certain amendments to the governing documents of the Legacy Funds that are required to affect the transaction. Please complete and return this. And it also says it is important to highlight that Sequoia personnel and associated persons will not be offered the option to sell Stripe shares previously received as carried interest. Distributions from the legacy funds. And no character interest will be payable to the sellers in connection with this transaction. I think that piece is smart too, not letting kind of the personnel sell. It again aligns how bullish they are and how continued bullish they are in the company. So I think they did a great job on both sides aligning with LP's, not taking care of interest, but also signaling, hey, this is a small percentage of our overall holdings. This is not a fire sale. This is not something that we're trying to, you know, do behind your backs. We're doing it right in front of you. We're giving you all the facts. And our personnel are not selling as part of this transaction. We are still bullish. I think there's a couple aspects here. If you think of venture capital as a product and LP as customers, uh, Sequoia is being very responsive to their customers. So customers are saying we want DPI, we want DPI and instead of saying we can't do that or there's different restrictions and all these, they've kind of come together with a pretty novel solution, but has a couple of aspects. One is the 409 a valuations. So they've decided to use this 409 a valuations. As you guys know, 49A valuations are typically a depressed. Valuation, that's where employees typically exercise their options. So they're typically it, it has an embedded discount there. But they're also, they're not being coy and they're not taking advantage of their limited partners. They're not forcing people, they're not double dipping. So they're doing in a way essentially saying, look, we hear what you need around DPI and we want to accommodate you if you're willing to do that. If you don't, that's totally fine as well. We're not, we're not being opportunistic around your DPI needs. So I think overall this is a positive thing. I wonder, Matt and Jamie, whether, you know, you think other venture funds will follow and whether this might be a template for other venture funds to solve around the DPI issue? Well, I think it's the reality of our industry right now. The public markets are no longer a fundraising event. They're liquidity event in a lot of ways, right. And so the world of Amazon going public at a $500 million market cap and you know, the, the value expansion taking place in the public markets has kind of flipped. That's why my Old Firm, Code 2 went into the private markets in the first place. And so I think it's a reality. Well, it look like this, I'm not sure, maybe a lot of the larger funds, I mean, for us as an emerging manager, smaller funds, smaller checks at the preceding seed. You know, we like to work with our management teams when the company gets to this pre IPO or right before they go public, If they're, you know, if, if some, if some early investors are taking money off the table, we'll try and take a portion off and still be kind of leveraged and, and and bullish on the business and keep them. Authority of our shares in, but look at it in partnership with the management team and partnership with the other early stage investors to help our LP's get DPI in what has been a really difficult environment over the last 24 months. So I think you have to be proactive is the there's the underlying rule now. I wonder Jamie you mentioned you referenced the different asset classes like private equity and buy out and there if you think about it from a first principles basis, private equity funds are selling their positions to other private equity funds which are selling to other private equity funds. So you have the same private asset, you know getting liquidity every three years, but over you know 3 * / 9 years. Do you think maybe there might be an evolution where you know, secondary becomes almost part of the process rather than this obscure kind of solution for somebody's? What did he needs? Does venture capital in general need to have a different liquidity profile in order to expand, you know, the amount of people are interested in investing? I'd say, you know, Sequoia has the benefit of a structure that allows them to execute this type of strategy. And to Matt's point, there's probably larger firms out there that can also leverage their structure to take advantage of these situations. I think a lot of firms out there do not have this structure and need to find alternatives, but the benefit of. Investing in emerging managers or pre seed and seed is when you've gotten to evaluation of potentially $100 billion in the private markets. Taking some money off the table via a secondary is a great way to provide DPI to your underlying LP's while also still keeping, you know, capital in the ground compounding at a high rate, you know, playing the optionality upside that venture still offers. I think that. When you look at venture, there's innovation and creativity everywhere. So I imagine that there's going to be more creative and innovative solutions coming out there where, you know, potentially a different structure of a secondary fund or, you know, some type of private equity style player that's adjacent to venture that comes in and buys up. Because you know, as LP start to get desperate, they're they're willing to potentially go off their first principles and you know, go for go for the capital, even though potentially keeping it in the ground. For another three to five years could be very advantageous from a multiple standpoint. There's an opportunity cost to, you know, putting your dollars to work. Ohh, my Lord. 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