Sequoia Slams The Breaks

Sequoia's Investments Under the Scanner, Japanese Funds Get a Regulatory Boost, Bill Gates Backs New Climate Startup.

Author

Adam from VC Brags
January 23, 2023

Welcome Shareholders,

First off, a huge thanks to all of the new shareholders joining us. In this daily edition of the Brags Newsletter, we'll cover Sequoia's Southeast Asian Scandals, Japan's plans to boost its venture economy and the latest startup to be backed by Bill Gates.

So sit back, grab a snack, and enjoy!

Venture Today đź‘Ź

  • Sequoia Capital is considering special audits of South/Southeast Asian investments following financial irregularities at firms like Zilingo and GoMechanic.

EY recently submitted a report revealing financial irregularities at portfolio company GoMechanic, including overstated revenue and misused funds, as discovered by other potential investors. Sequoia was the startup's largest shareholder, reporting a 27% stake, and has been an investor in the company since 2019. E-commerce startup Zilingo, which was also backed by Sequoia, recently announced liquidation after investors found financial irregularities.

Sequoia said that it will collaborate with EY on audits and increase the budget for governance measures (as opposed to conducting due diligence just before the transaction as the VC does now). Sequoia will also be more selective in taking board seats and may replace junior members with senior partners.

  • Japan plans to eliminate a significant limitation on overseas investments by venture funds within the country, with the goal of drawing in more foreign investors to the startup sector.

Startup funds in Japan are capped at investing in foreign startups to less than 50% of their portfolio holdings. The restrictions introduced into law in 1998 hamper foreign investors from targeting Asia as a whole, limiting flexibility in their investments. The new amendments will be submitted as a draft amendment to the limited partnerships in 2024.

The new measures come as the Japanese startup ecosystem lags behind its American and European counterparts. Government data shows that there are over 600 unicorns (startups valued at over $1 billion) in the US, and more than 100 across China and Europe, compared to just six in Japan. The country has set a goal of increasing its annual investment in startups to 10 trillion yen ($77.2 billion) by FY27, which is a 10x increase compared to current levels.

Startup of the Day

  • Perth-based climate tech startup Rumin8 has raised A$18 million ($12 million) in the second phase of its seed round from investors, including bill gates founded VC firm Breakthrough Energy.

Other investors include fellow billionaires Andrew and Nicola Forrest through their agri-food business Harvest Road Group. With its second seed round, Rumin8 has raised a total amount of A$25 million so far. The startup focuses on reducing methane emissions in agriculture using natural compounds used in livestock feed.

The new funding will fund the company's commercial trials across Australia, New Zealand, Brazil, and the US. After the trials, Rumin8 will pilot a manufacturing plant to move towards commercializing its feed additives.

Memes and Other Things