Venture capital giant Sequoia Capital cuts 65% of its cryptocurrency fund, stating: will focus more on startups

The venture capital giant Sequoia Capital, after experiencing the collapse of FTX and a reshuffle of several top executives, announced on the 27th that it will reduce the size of its cryptocurrency fund by 65%, from $585 million to $200 million. The firm stated that this move is due to tightening market liquidity and aims to shift focus to supporting startups, as reported by The Wall Street Journal.

Redshirt Crypto Fund Investment Shrinks by 65%

The well-known venture capital firm Sequoia Capital launched a cryptocurrency fund in February 2022, focusing on investing in the crypto industry and actively participating in protocol interactions and governance.

However, due to sudden changes in the market environment, it was reported in a previous communication to investors that the fund's size will be reduced from $585 million to $200 million.

Sequoia Capital explained to the Financial Times of the UK here:

We are making these adjustments to focus more on seed-stage investment opportunities and provide liquidity to our limited partners.

A spokesperson added that the current volatility and uncertainty in the crypto industry have reduced opportunities for investing in large enterprises, prompting Sequoia Capital to focus more on early-stage startups. They also aim to lower the capital threshold to allow more investors to participate in the fund and emphasize that they have returned over $15 billion to investors in the past three years.

However, some venture capital firms are optimistic about future trends, such as Polychain Capital and Coinfund, who continue to increase their crypto company investment portfolios. They previously raised a total of $350 million in their investment funds here.

Sequoia Capital's Road to Recovery

Prior to this, Sequoia Capital suffered heavy losses in the collapse of the FTX exchange, in which they were a major investor, enduring a loss of $214 million and significant reputational damage. This month has also seen a series of high-level personnel changes.

This includes the departure of senior partners Michael Moritz and Mike Vernal, as well as several others involved in FTX investments such as Michelle Fradin, Kais Khimji, and Daniel Chen.

Slowdown in Venture Capital Inflows

According to Cointelegraph Research data from the venture capital database, the total venture investment in June was only about $780 million, a 29.7% decrease from the previous month. The growth in the first three months has stagnated, indicating that the instability of the cryptocurrency market has led many venture capital firms to reduce their investments in the crypto industry.

However, although venture capital amounts and market inflows have shown significant declines for over a year, this does not necessarily indicate a danger signal, as venture capital firms are typically a lagging indicator, and the overall trend for 2023 is still uncertain.