One of Sequoia’s most outstanding buyers, managing associate Roelof Botha, sees indicators of one other greed cycle brewing in enterprise capital, one the place the least refined buyers will possible get most harm.
He posted a warning on X on Thursday, writing, “We stay destined to repeat the errors of the previous! SPVs are making a come-back, the place the lead investor speaks for lower than 10% of the capital, but eagerly traces up the most recent set of vacationer chumps who suppose the story will finish in a different way this time. It’s solely been 3 years.” (He punctuated the publish with an exploding-head emoji.)
That final cycle ended badly. In 2022, the overheated VC market of 2021 crashed. The fallout continues to be ongoing, with 2025 anticipated to be one other brutal yr of failed startups.
Botha is particularly warning about particular function autos (SPVs) — a construction that enables a startup’s investor to promote entry to a piece of their shares to others. But the brand new buyers will not be really shopping for shares within the startup; they’re shopping for shares of the SPV, typically at tremendously inflated costs. That means the startup’s valuation must soar only for among the SPV share homeowners to interrupt even.
SPVs have gotten particularly frequent in AI investing, the place some startups are elevating astronomical sums. A search of SEC filings finds at the least 9 SPVs tied to Anthropic since 2024 alone. The firm is reportedly in talks to boost one other $3.5 billion.
Figure AI’s try to boost $1.5 billion can also be reportedly filled with SPVs, per the Information. Note that neither firm is in Sequoia’s portfolio.
The pattern isn’t restricted to just some firms. Nearly each main multi-billion AI firm has buyers providing SPVs. And if a big-name VC agency agency — say, Sequoia’s archrival Andreessen Horowitz — is main the deal, that identify alone can lure in consumers.
One particular person concerned within the secondaries markets describes SPV-laden offers like this: “They are passing the hat on all of the offers that may’t discover sufficient VC buyers and the identify agency places up a tiny quantity and these silly household places of work say oh, ‘Andreessen is main it should be good,’ despite the fact that we all know that these are their worst firms that may’t increase cash from conventional VCs.”
Botha’s message to those would-be buyers? “Don’t purchase it.”
Sequoia didn’t instantly reply to a request for additional remark.
