Sequoia Capital Pulls Back From South America

SEPTEMBER 6, 2013, 10:15 AM

Sequoia Capital Pulls Back From South America

By VINOD SREEHARSHA

SÂO PAULO, Brazil — Sequoia Capital has decided to manage its activities in South America from its headquarters in California after its lone partner here, David Velez, left to start his own venture, people with direct knowledge of the firm’s plans said. The move, which these people said had been in the works for several months, shows the difficulty the Silicon Valley venture capital firm has faced in finding attractive investments in the region, even as start-ups have proliferated in recent years.One of the people who spoke about Sequoia, who like the others did not want to be identified because the firm had not publicly announced the change, said the firm had focused in South America “on looking for growth equity investments without taking early-stage risks.” But, this person said, the firm concluded that “there are not that many opportunities at that stage.”

Douglas Leone, a partner and managing director at Sequoia who has been traveling to Brazil for several years, will step in to become the point person for the region, two people said.

Interestingly, the departure of Mr. Velez, a graduate of Stanford’s engineering school and a former Morgan Stanley investment banker, has opened the door for Sequoia’s first investment in Brazil.

Sequoia will invest in Mr. Velez’s new venture, an online financial services company called EO2 Solucoes de Pagamento, according to people briefed on his plans. The company, based in Sâo Paulo, seeks to compete with Brazil’s highly profitable banking industry. According to a filing with the Securities and Exchange Commission, EO2 got $2 million in July from both Sequoia and Kaszek Ventures, a venture capital firm based in Buenos Aires.

Kaszek’s co-founder, Nicolas Szekasy, and Mr. Leone will serve on EO2’s board.

Mr. Velez’s personal plans seem to have developed in parallel with Sequoia’s increased hesitation to build up resources in the region. A person who knows both said, “Sequoia loves the guy,” but just decided it was not worth the time and money to maintain an office with another partner.

The deal flow here has frustrated Sequoia, a backer of Apple and Google, in particular the overwhelming e-commerce focus among entrepreneurs, this person said.

Sequoia, which would not comment, has two other investments in the region — Scanntech, of Montevideo, Uruguay, which makes technology to connect independent grocers and retailers with suppliers, and Despegar, an online travel agency in Buenos Aires.

Mr. Velez is expected to stay on the boards of both Scanntech and Despegar for the time being, part of a gradual transition.

Sequoia also has exposure in the region through Kaszek. Its fund of funds, known as Heritage, invested in Kaszek’s initial fund that closed in 2011, according to two people familiar with both firms.

Still, Sequoia’s moves suggest that its priorities lie elsewhere. Last month, it created funds totaling $391 million for China and $227 million for Israel. It has yet to do anything similar for South America.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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