One in all Sequoia’s most distinguished traders, managing accomplice Roelof Botha, sees indicators of one other greed cycle brewing in enterprise capital, one the place the least refined traders will doubtless get most damage.
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 assume 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 expected to be another brutal year of failed startups.
Botha is particularly warning about particular goal automobiles (SPVs) — a construction that permits a startup’s investor to promote entry to a piece of their shares to others. However the brand new traders usually are not really shopping for shares within the startup; they’re shopping for shares of the SPV, often at greatly inflated prices. Meaning the startup’s valuation must soar only for a few of the SPV share house owners 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 least nine SPVs tied to Anthropic since 2024 alone. The corporate is reportedly in talks to lift one other $3.5 billion.
Determine AI’s try to lift $1.5 billion can be reportedly filled with SPVs, per the Information. Notice that neither firm is in Sequoia’s portfolio.
The development isn’t restricted to just some corporations. Practically each main multi-billion AI firm has traders providing SPVs. And if a big-name VC agency agency — say, Sequoia’s archrival Andreessen Horowitz — is main the deal, that title alone can lure in patrons.
One particular person concerned within the secondaries markets describes SPV-laden offers like this: “They’re passing the hat on all of the offers that may’t discover sufficient VC traders and the title agency places up a tiny quantity and these silly household workplaces say oh, ‘Andreessen is main it should be good,’ regardless that we all know that these are their worst corporations that may’t increase cash from conventional VCs.”
Botha’s message to those would-be traders? “Don’t purchase it.”
Sequoia didn’t instantly reply to a request for additional remark.