Technology
One of Sequoia’s most prominent investors, managing partner Roelof Botha, perceives indications of a new cycle of greed emerging in venture capital, one where the least discerning investors are likely to face the most significant losses.
He shared a caution on X on Thursday, stating, “We are fated to repeat the mistakes of history! SPVs are making a comeback, where the lead investor contributes less than 10% of the capital but eagerly gathers a fresh batch of naive investors who believe this time will be different. It’s been three years.” (He emphasized his post with an exploding-head emoji.)
That previous cycle concluded poorly. In 2022, the overheated VC market from 2021 collapsed. The repercussions are still unfolding, with “2025 anticipated to be another harsh year for failed startups.”
Botha is notably cautioning against special purpose vehicles (SPVs) — a framework that allows an investor in a startup to offer access to part of their shares to others.However, these new investors aren’t actually purchasing shares in the startup; they’re acquiring shares in the SPV itself at frequently enough inflated prices. This means that for some SPV shareholders to break even,the startup’s valuation must significantly increase.
SPVs are becoming especially popular within AI investments as certain startups raise substantial amounts. A review of SEC filings reveals at leastnine SPVs associated with Anthropic since 2024 alone. The company is reportedly negotiating to raise another$3.5 billion.
Resolve AI’s attempt to secure $1.5 billion will reportedly involve numerous SPVs according toThe Information. Note that neither company is part of Sequoia’s portfolio.
This trend isn’t confined solely to specific firms; nearly every major multi-billion dollar AI enterprise has backers offering SPVs.If a well-known VC firm — say Sequoia’s competitor Andreessen Horowitz — leads a deal, just their name can attract investors.
An individual involved in secondary markets describes deals burdened by SPVs like this: “They’re passing around opportunities for all those deals that can’t attract enough VC interest and then name firms contribute minimal amounts while these slow family offices think ‘If Andreessen is leading it must be good,’ even though we know these are their weakest companies struggling for funding from customary VCs.”
Botha’s advice for potential investors? “Avoid it.”
Sequoia did not instantly respond when asked for additional comments.
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