VC Firm Bans University Of California From Investing In Its Latest Fund

Sequoia Capital is seeking to guard its closely held books from public scrutiny, and has asked the university to sell its holdings in other Sequoia funds.
SAN FRANCISCO (AP) -- A prominent Silicon Valley venture-capital firm has barred the University of California from investing in its latest fund, seeking to shield its closely guarded books from public scrutiny.

Sequoia Capital, which has helped launch high-tech bellwethers Oracle Corp., Cisco Systems, Yahoo! Inc. and Google, notified the university of its decision Wednesday. The Menlo Park-based firm, which manages about $1.6 billion, also asked the university to sell its holdings in Sequoia's other funds.

Because their funds are privately held, venture capitalists have the option to turn away investors.

Sequoia's action stems from a recent push to gain greater access to the closely held books of venture capitalists.

Newspapers and other organizations have been suing publicly controlled institutions, such as universities, to obtain the results of their investments in privately held venture-capital firms.

The curiosity has been sparked by the huge losses that venture capitalists have sustained during the high-tech downturn of the past three years.

Venture capitalists helped finance the mania that preceded the crash by pouring $182 billion into startups from 1998 through 2000. Much of that money was provided by universities, pension funds, and other institutional investors.

The crusade for greater disclosure has infuriated Sequoia and other venture capitalists, who contend they need to protect most information about their investments for competitive reasons.

With its move, Sequoia is ending a 22-year relationship with the University of California system, which had a $53.25 billion investment portfolio as of June 30. Just under $650 million of the university's assets--slightly more than 1 percent of the total portfolio--was held in venture-capital funds.

The University of California has invested a total of $110 million in Sequoia partnerships that generated a $508 million return, according to a sworn declaration by Treasurer David Russ.

Russ didn't return phones calls Thursday. He said he was "in mourning" about Sequoia's decision in the declaration, submitted as part of an Alameda County Superior Court lawsuit that triggered Sequoia's rejection.

"Loss of the opportunity to invest in Sequoia Capital's partnerships cannot be replaced by similar productive investments; such opportunities are simply not available," Russ said in the document.

Russ predicted other venture capitalists with privacy concerns will follow in Sequoia's footsteps and lock out the university, costing "the university's funds perhaps billions of dollars in returns."

Sequoia last month told the University of Michigan to sell its holdings in six of the firm's partnerships.

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