Sequoia Chopping Off UC Venture Ties

The decision by Sequoia is linked to “the spate of Freedom of Information Act requests with which your office has been bombarded,” said Sequoia partner Michael Moritz in a letter to UC Treasurer David Russ.   Additionally, Russ points to the recent ruling by an Alameda County Superior Court judge who found there was insufficient reason to maintain confidentiality of venture capital returns in the UC’s investment portfolio, according to a Wall Street Journal report.

Moritz pointed out that Sequoia had given the UC regents the largest allocation of the firm’s recently raised Fund XI, a fund that has a total estimated valued of $385 million. “We would clearly prefer to continue serving great public institutions such as the University of California if we felt confident that all of our information would remain private,” Moritz wrote, adding “but I’m afraid that today’s climate is so inhospitable that we have no choice but to seek clients who can offer the assurance that our information remains confidential.”

Trey Davis, a spokesman for the UC system, said “the university was extremely concerned that the judge’s initial ruling forcing public disclosure of individual internal rates of return would prompt venture capital funds to kick the university and similar public institutions out of top-tier funds,” adding “the Sequoia action against UC and a similar action against the University of Michigan recently is an indication of the harm that can come to the investment portfolios of public institutions.”

Venturing Out

UC’s divestiture from the fund would be the latest in a string of similar moves Sequoia has made and could have a serious impact on the overall return of the university’s investments.   Over the years, Sequoia has returned more than $508 million to the university on its investments of $110 million, according to the Journal report.

Actions like this, the university says, only underscore its argument that venture capital disclosures could hurt its access to some of the premier venture capital firms.  Menlo Park, California-based Sequoia Capital recently asked the University of Michigan to withdraw as an investor, saying it feared the Michigan university’s disclosure of performance and other data Sequoia considers confidential.  This was after, the Michigan university disclosed Sequoia’s basic financial performance data, called “internal rates of return,” to comply with that state’s freedom of information laws in February.  Sequoia later accepted Michigan back as an investor, but it changed its mind again late last month.

The university has filed a motion in Alameda County Superior Court, asking the court to reconsider the disclosure ruling made on July 24 (See  CA Judge Orders UC Venture Capital Data Release ), because of these recent developments.   The lawsuit prompting the latest ruling, filed in April by the Coalition of University Employees and the San Jose Mercury News, argued that UC is required to disclose the information under state public records laws.  UC attorneys, meanwhile, say the information is a trade secret of the private consultants who calculated the investments and that making the information public would violate confidentiality agreements.