The lines between VCs and other investors are getting blurry

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The move is interesting for several reasons, as Lucinda pointed out briefly on Wednesday . It will give the firm, among other things, more flexibility to enjoy the post-IPO returns of its portfolio companies and to support good founders throughout their companies’ public stage. In turn, LPs will also have a different payout structure—it seems they will have annual redemption rights instead of waiting for distributions at the end of a traditional 10 year cycle, per Axios .

But the move is also a sign of the times, and the times, at the moment, are booming.

The move is a function of a couple factors according to Santosh Rao, head of research at Manhattan Venture Partners, key among them: “The bull market. Right now, across the board, in the private markets and public markets and everywhere, it’s just been up, up, and up,” he says. There’s “a lot of crossover going on,” and Rao notes “it was going to happen anyway—the hunt for alpha is inevitably going to wherever there is excess alpha.”

This isn’t a new trend. If you’ve been paying attention, you’ve surely noticed those dynamics are shaking up the more traditional structures of not only VC firms, but hedge funds, too.

What’s been increasingly happening in recent years is that hedge funds, which have largely (or, perhaps, traditionally ) invested in public equities, are moving more of their cash into the private markets in search of attractive gains (just look at Tiger Global Management ); while VC firms are holding public stocks (Sequoia, for example, already holds roughly $45 billion worth of U.S. and European public equities, according to Axios ).

To put some stats on it: In the first six months of 2021 , hedge funds poured $153 billion across 770 deals with private companies, according to a Goldman Sachs report. That’s already more than they invested in all of 2020 ($96 billion across 753 deals), though still a small portion of the overall deals done. Meanwhile, many big VCs, including Andreessen Horowitz, General Catalyst, and now Sequoia, have become registered investment advisors (RIAs) in recent years in order to invest more of their funds into different assets outside their traditional purview (including crypto, public stocks, and secondaries).

The benefits for VCs are obvious, as many including Sequoia point out: the ability to hold on to good companies that see huge gains after they IPO or who are “not fully baked yet,” as Rao puts it. (Sequoia name checked one such company, Square, which partner Roelof Botha noted went from a $2.9 billion market cap at IPO to now over $120 billion, as of Thursday.) The crazy bull market of the past 19 months or so has perhaps put into question whether or not the best returns, especially for the growthy tech stars that have filled VC portfolios in recent years, are to be made before a company goes public.

The upshot here is that, highlighted by moves like Sequoia’s, we’re seeing VC firms and hedge funds both taking on strategies that aren’t historically their status quo. I wager this dynamic will be even more interesting as hedge funds are increasingly competing with VCs for deals .

The big question: Will a flood of VC firms join Sequoia? “Crossover funds are going to happen, investing across asset classes is going to happen, it’s already happening,” notes Rao (indeed, Sequoia already has one such crossover fund). But when it comes to asking LPs to invest in one big open-ended fund, “I think you really need the reputation behind that.” Sequoia certainly does. In fact, Sam Lessin, a general partner at Slow Ventures and an intern at The Information , writes for the publication that, “in truth, most don’t have the brand, LP relationships, or balance sheet to take the same step. I don’t think others will rush to adopt this model,” he argues.

I, for one, am interested to see how this shakes out in the investment world—and if we’ll see a further blurring of the lines of what a traditional VC firm looks like (I suspect this is the case)—as returns, at least for now, can be found in many corners of the market.

NOT SO SWEET…GREEN: Salad food chain Sweetgreen filed for an IPO earlier this week, and as many folks on Twitter and elsewhere picked up on pretty quickly, Sweetgreen hasn’t been entirely honest […]

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