Sequoia China to compete with Peak XV in Singapore

Sequoia's Chinese arm HongShan is expanding in Singapore and has set up an office in the capital city to invest in startups in the Southeast Asia region, according to a report by Financial Times.

This will lead to a direct clash with Peak XV partners, the  Sequoia Indian and South East Asian arm that was recently rebranded as a fully independent firm to back startups in both regions.

In June, Sequoia announced that the US and Europe-focused unit will retain the parent name – Sequoia Capital while the China unit will be called HongShan. The three firms will be headed by Roelof Botha, Neil Shen and Shailendra Singh, respectively. The restructuring will be completed by March next year.

​​Peak XV Partners has emerged among the largest venture capital firms in the country and the Southeast Asia region with over 400 startups in its portfolio. The fund recently said that it has seen over 50 companies cross $1 billion in value already, celebrated 19 IPOs and multiple successful M&A events.

While the reshuffle happened amid geopolitical tensions between China and the United States, the former denied any such reason behind the split of the Silicon Valley-based VC firm. However, HongShan’s entry into Singapore is going to collide with the Indian arm which could further escalate speculations over geopolitical tension between the two countries. Though a counter view could be the differing perspectives of the market when seen through China versus say, India or SE Asia. Especially the outsized role of Chinese-origin investors in these markets.

Singapore has been a favoured destination for many Indian founders to set up base in, to avoid tax complications back at home. There is speculation that the same could be true of Chinese entrepreneurs too, considering the recent interventions by authorities there in the fate of Alibaba and many other startups.

“We have a very strong and collaborative relationship with the HongShan team and deep friendships with many of the partners. We welcome the opportunity to collaborate with them in the years ahead. We believe the opportunities for collaboration are far greater than the scope for competition," said a spokesperson, Peak XV Partners.

India of course has made things even more complicated by amending the foreign exchange management (FEMA) act in April 2020 to forbid FDI in India, including via the ‘automatic route’, with immediate neighbours. This move was primarily aimed at blocking FDI from China. After nine months, the Indian government reportedly began clearing foreign direct investment on a case-by-case basis.  The government had a committee comprising officials of home, commerce and external affairs ministries and Niti Aayog to put tight scrutiny on such deals.

With both the Sequoia entities involved here having a portfolio size in the tens of billions, it is obvious that the decision to end up ‘competing’ would not have been taken in haste. Clarity should follow in the coming months as the next set of deals fall into place.