What Are They Thinking?

I’ve probably had a dozen conversations with VC limited partners over the past week, and every one of them has asked me some variation of: “Why are Sequoia Capital and Kleiner expanding beyond traditional venture capital?”

It’s a great query, and the consensus answer lies somewhere between hubris and a recognition that venture capital rarely produces the outsized returns that it once did (we call this “PE envy”).

The principals themselves aren’t talking, so let me suggest another option in which I play pop psychologist: These firms have been at the top forever, and are in little danger of being knocked off (particularly Sequoia). So the only option is to continue being the best VC firms indefinitely (i.e., status quo) or they can try to become the best at something new (i.e., challenge themselves). Plus, the latter option lets them recognize some brand equity without selling a 20% firm ownership stake to Dubai.

Just thinking aloud…