MENLO PARK, Calif. — Sequoia Capital Partners is shutting the door on funds of funds that want to invest in its new $450 million fund.
Sequoia and some other top-tier venture capital firms barred public pension funds two years ago for fear proprietary data would be released to the public. Now, Sequoia is telling funds of funds to take their money elsewhere, choosing to work with investors directly.
Other venture capital firms — such as ITU Ventures, Los Angeles, and Investcorp S.A., New York — have always shied away from accepting commitments from funds of funds. OVP Venture Partners, Kirkland, Wash., accepts commitments from managers of pooled capital only if there is a single investor.
One reason for the move is that top-flight venture firms are raising smaller funds and, therefore, need fewer investors. These funds are particularly sought after by investors because there is a tremendous difference in returns generated by the top 10% of all venture capital managers and the rest. So, top-tier managers have the luxury of picking their investors.
Another reason is that executives at venture capital firms don't want the funds of funds to have access to information about the fund and firm that could be used as a selling tool.