Sequoia China’s “Blockchain Empire”: At least 14 investments in seven years, covering the entire track from mining companies to industrial capital布局

Author: Zhang Yangyang, Xu Cihao

"If you can get top-tier investments like Sequoia, then half of the entrepreneurial success is achieved." This saying circulating in the entrepreneurial circle also applies to the blockchain industry.

The reporter from "Blockchain Daily" has found that Sequoia Capital China (hereinafter referred to as Sequoia China) has invested in more than 14 blockchain or cryptocurrency projects, starting with its investment in Huobi seven years ago, followed by investments in Bitmain, Conflux, PayPal Financial, Distributed Technology, and others.

Although Shen Nanpeng has repeatedly claimed that he does not understand blockchain very well, Sequoia China's moves have been quite sharp. Not only has it invested in many leading and phenomenal projects, but it has also ventured into mining machine manufacturers, exchanges, underlying technology development companies, crypto financial service providers, and various downstream applications.

It can be said that a blockchain investment empire of Sequoia China is taking shape.

Exchange Sector: Investing in Huobi but Missing Binance

On July 29, the American online brokerage, dubbed the "retail investor's base," went public on NASDAQ.

Robinhood's ability to go public owes much to its cryptocurrency trading business.

In February 2018, Robinhood launched its commission-free Bitcoin and other cryptocurrency trading services for the first time. According to data disclosed in its prospectus, in the first quarter of 2021, the company had total revenue of $522 million, with 17% of its revenue coming from cryptocurrency trading, and trading volume reaching $88 billion, a 23-fold year-on-year increase.

After Robinhood launched its cryptocurrency business, Sequoia Capital (overseas) began pouring significant funds into it.

In March 2018, Sequoia Capital participated for the first time in Robinhood's $363 million Series D financing. According to Tianyancha data, from the Series D round until just before its IPO's G+ round, Sequoia Capital participated in every subsequent financing round of Robinhood.

In fact, at the cryptocurrency exchange level, Robinhood was not the first investment target for Sequoia Capital.

In 2018, Sequoia China founder Shen Nanpeng stated in an interview with Wu Xiaobo, "We invested in blockchain-related companies four years ago." The companies referred to here include Huobi, one of the largest cryptocurrency exchanges in the world.

According to business registration data from Tianyancha, Huobi received millions of dollars in financing from Sequoia China in March 2014. This was Sequoia China's first foray into cryptocurrency, as publicly disclosed.

In August 2018, Huobi, in partnership with LVB Capital, acquired Hong Kong-listed company Tongcheng Holdings. The equity stake of Huobi was also disclosed for the first time, with Sequoia China holding a 23.3% stake, making it the second-largest shareholder after Li Lin.

Equity structure disclosed by Huobi in August 2018

Additionally, Sequoia China had also targeted another exchange, Binance. However, due to various reasons, the two parties eventually ended up in court.

On the evening of May 7, 2018, Zhao Changpeng even announced that all projects listing on Binance in the future would need to disclose whether they had a direct or indirect connection with Sequoia.

The general story is as follows: In August 2017, Binance discussed investment matters with Sequoia, which offered an $80 million valuation; however, as Bitcoin prices surged, Binance rapidly developed from a small exchange to an industry leader, far exceeding the $80 million valuation; later, Binance accepted investment from IDG Capital, which offered a valuation more than ten times that of Sequoia; subsequently, Sequoia and Binance engaged in a protracted lawsuit.

In the exchange sector, Sequoia Capital's latest move is investing in the emerging exchange FTX. On July 20, it was reported that FTX completed a $900 million Series B financing at a valuation of $18 billion, with Sequoia Capital among the investors.

Mining Sector: Bitmain and Bit Mining

Exchanges and mining machine companies are at the upstream of the industry, making them typical examples of "lying down to earn money." In the mining sector, Sequoia China has not only invested in the world's largest mining machine company, Bitmain, but also in the rapidly developing mining company—Bit Mining, which is listed in the US.

In August 2017, Sequoia China led a $50 million Series A financing for Bitmain and continued to follow up with a $290 million Series B financing a year later.

Since receiving angel investment in 2013, launching its first mining chip BM1380, and introducing the Antminer S1, Bitmain has become a giant in the industry.

Although Bitmain has not successfully gone public, its financial status remains unknown to the outside world. However, it is certain that Sequoia China's investment can yield substantial returns.

When Bitmain sought an IPO in Hong Kong in 2018, it disclosed some data. In 2017, the company achieved $2.5 billion in revenue and $1.25 billion in net profit; in the first quarter of 2018, it reported $1.87 billion in revenue and $1.14 billion in net profit, with a net profit margin of 60%.

In addition to mining machines, Bitmain also owns AntPool, the top-ranked Bitcoin mining pool, and BTC.com, the third-ranked mining pool. However, Bitmain has since sold these two major pools.

Among them, Bit Mining acquired BTC.com. From April 1 to April 30, 2021, BTC.com generated approximately 55.3 million RMB (about $8.4 million) in gross profit for Bit Mining.

Bit Mining was originally named 500.com, which primarily focused on online lottery sales. After the founder's return on December 22, 2020, it transformed into cryptocurrency mining.

Notably, before 500.com went public in 2013, Sequoia China subscribed to $20 million in convertible bonds and $15 million in private ordinary shares delivered simultaneously with the IPO. Sequoia China has held shares in 500.com up to now and is currently the third-largest shareholder of Bit Mining.

Industry insiders have analyzed that Bit Mining's acquisition of BTC.com was facilitated by Sequoia China.

However, Sequoia China denied this to the reporter from "Blockchain Daily."

Currently, there is a cleanup and rectification of Bitcoin mining in China. On July 12, Bit Mining announced that it had signed a securities purchase agreement with certain institutional investors in the United States, planning to sell $50 million worth of Class A ordinary shares and $68.1 million worth of warrants through a targeted issuance. The company plans to use the proceeds from this issuance to purchase mining machines, build new overseas data centers, enhance technical infrastructure, and increase working capital.

With Bit Mining's overseas expansion, Sequoia China's investment puzzle has come together with mining machine manufacturers and cryptocurrency mining.

Other Sectors: Forming a System from Points to Planes

During his time at Ctrip, Shen Nanpeng and his team had a habit of extending their business upstream and downstream. For example, in addition to the online travel service platform Ctrip, they also developed the Home Inn hotel series for accommodation services.

As stated in the introduction of Shen Nanpeng on Sequoia China's official website: "From points to planes, first focus on doing one thing well, then gradually extend upstream and downstream to form a system."

In addition to initially focusing on the top of the food chain—exchanges and mining machine manufacturers—Sequoia China's subsequent investments have gradually deepened into blockchain underlying technology development, crypto financial service providers, and downstream applications.

In May this year, Sequoia China participated in the $50 million Series A financing of crypto asset financial service provider PayPal Financial. Last August, Sequoia China first participated in the Series A financing of the public resource trading blockchain platform Biao Xin Zhi Lian, and in April this year, Sequoia China continued to follow up in the latter's Series A+ financing.

Looking back further, in July 2018, Sequoia China and Wanxiang led a $28 million private placement round for the blockchain technology project Nervos Network.

In 2017, blockchain technology developer Distributed Technology completed its seed round fundraising, which Sequoia China participated in alongside Fosun Group.

In addition to directly investing in projects, Sequoia China has also adopted a more discreet method—directly investing in blockchain funds.

In January this year, Sequoia China announced its investment in Dragonfly Capital, becoming its strategic partner. According to the information, Dragonfly Capital is a venture capital fund focused on the blockchain industry, initiated by Feng Bo, founding partner of Lianchuang Ciyuan, aiming to invest in early-stage projects to layout the global blockchain ecosystem.

According to incomplete statistics from the reporter of "Blockchain Daily," since 2014, Sequoia China has made at least 14 investments in the blockchain industry, involving mining machine manufacturers, cryptocurrency exchanges, blockchain underlying technology development, blockchain applications, and industrial capital institutions.

It can be said that Sequoia China has almost created a "blockchain empire."

Regarding Sequoia China's investment philosophy in the blockchain industry, the reporter from "Blockchain Daily" requested an interview, but the other party politely declined.

14 blockchain projects invested by Sequoia China

Observing Sequoia's investment targets in the past two years, aside from PayPal Financial, there has been a greater focus on blockchain underlying technology and applications, such as the twice-invested Biao Xin Zhi Lian. This trend aligns with a share from an investor at the 2021 World Blockchain Conference.

"Blockchain may give birth to the next generation of infrastructural things." He stated that combining data sharing, security, privacy, and forming a consensus infrastructure is a key focus.

Additionally, he mentioned that in terms of integration with the industry, in the next phase of the explosion of big data applications, technologies that have not been well applied in traditional internet scenarios, such as privacy computing, will have huge opportunities in areas like data security, privacy protection, and intellectual property.

"This can create a synergistic effect."

Undoubtedly, blockchain, as a representative of cutting-edge technological innovation, is attracting global capital's attention.

As early as 2018, Xu Xiaoping, the head of ZhenFund, called on entrepreneurs to "all in" on blockchain. That year, in an interview with Wu Xiaobo, Shen Nanpeng also mentioned the need to "understand" blockchain.

Since the beginning of this year, with the explosive rise in cryptocurrency prices, investment and financing activities in the blockchain industry have been exceptionally active, with financing amounts skyrocketing. According to statistics released by industry media The Block, in the first half of 2021, the financing amount for blockchain projects and companies reached $16.52 billion.

Ye Ding, co-founder of Hash Capital, told the reporter from "Blockchain Daily" that there has always been an unwritten rule in the industry: obtaining the endorsement of top-tier capital like Sequoia China will lead to projects being sought after by everyone. "You don't have to do anything; its investment is the biggest recognition of the project itself."

Huobi founder Li Lin previously stated in his social circle that projects receiving investment from top global VCs like Sequoia would receive extra points during the listing review on exchanges.

According to incomplete statistics from the reporter of "Blockchain Daily," this year, the blockchain industry has already seen 30 financing projects exceeding $100 million, among which Sequoia Capital participated in four: Fireblocks, FTX, Trade Republic, and Robinhood. In contrast, there were only five financing projects exceeding $100 million in 2020.

Yu Jianing, rotating chairman of the Blockchain Special Committee of the China Communications Industry Association, told reporters that this year's investment and financing activities have a characteristic: the financing rounds have shifted from seed rounds to mid-to-late stage investment rounds, with some even having gone public or preparing for an IPO.

This indicates that top investment institutions like Sequoia are playing an increasingly significant role in the industry. Conversely, Sequoia China's investment strategy of betting on leading projects and covering the upstream and downstream of the industry chain will further consolidate its position in the industry.

From the perspective of investment returns, for the institutions themselves, "this can create a synergistic effect." A serial entrepreneur in the blockchain industry told reporters that his company had received investment from Sequoia China, but "the investors did not put pressure on us for investment returns."

Wang Haifeng, a senior researcher at OKLink Research Institute, analyzed to the reporter from "Blockchain Daily" that traditional investment institutions' investments in blockchain projects indicate that the commercial logic of the blockchain industry is forming a closed loop, and there is more value support that has already landed or is about to land, increasing its attractiveness to the mainstream market represented by traditional investment institutions.