Sequoia Breaks Its Own Rules to Back AI Rival Anthropic

Sequoia Capital, one of the world's most influential venture capital firms, is joining a major funding round for Anthropic, the artificial intelligence company behind Claude. The move marks a significant departure from how Silicon Valley has traditionally operated, as venture firms have historically refused to invest in competing companies within the same industry.

The funding round values Anthropic at $350 billion, more than double its valuation from just four months ago. Sequoia is joining the round alongside Singapore's GIC and U.S. investor Coatue, who are each committing $1.5 billion to the effort. Microsoft and Nvidia have already pledged up to $15 billion combined, with other venture capital firms and investors expected to contribute another $10 billion or more. Anthropic is aiming to raise $25 billion or more in total.

Background

For decades, venture capital has operated under an unwritten rule: pick your horse in each race and stick with it. The logic is straightforward. If a firm invests in two competing startups, it creates conflicts of interest. The firm cannot share information equally between both companies. It cannot push both with equal force. One investment inevitably suffers.

Sequoia has been perhaps the most rigid enforcer of this principle. In 2020, the firm took the extraordinary step of walking away from Finix, a payments startup, after determining it competed with Stripe, another Sequoia investment. The firm forfeited its $21 million investment in Finix, surrendering its board seat and information rights. It was the first time in Sequoia's history that it had severed ties with a newly funded company over a portfolio conflict.

That decision came just months after Sequoia had led Finix's Series B funding round. The firm chose principle over potential returns.

Key Details

A Pattern of Exceptions

Sequoia's investment in Anthropic is not actually the firm's first exception to its conflict-of-interest policy. The firm is already invested in both OpenAI and xAI, Elon Musk's artificial intelligence company. Both are direct competitors in the AI space.

However, Sequoia has characterized its xAI investment differently. The firm frames that bet as part of its broader relationship with Musk rather than a direct challenge to OpenAI. Sequoia has invested in Musk's X, SpaceX, The Boring Company, and Neuralink. The xAI investment, in this view, is simply another piece of that portfolio.

The Anthropic investment is harder to explain away. There is no comparable relationship with Anthropic's leadership that would justify the conflict under Sequoia's historical standards.

Leadership Changes and New Direction

Sequoia's willingness to break its own rules comes after significant leadership changes at the firm. In the fall, Roelof Botha, Sequoia's global steward, was forced out in a surprise vote. Alfred Lin and Pat Grady took over leadership roles. Grady was the partner who led the Finix deal that resulted in Sequoia's historic divestment.

Sequoia has deep ties to Sam Altman, OpenAI's chief executive. When Altman dropped out of Stanford to start Loopt, Sequoia backed him. He later became a scout for the firm, introducing Sequoia to Stripe, which became one of the firm's most valuable investments. Lin, Sequoia's new co-leader, has interviewed Altman multiple times at Sequoia events.

"When Altman was briefly ousted from OpenAI in November 2023, Lin publicly said he'd eagerly back Altman's next world-changing company."

Some observers see Sequoia's Anthropic investment as a way to maintain influence in the AI sector while hedging its bets across multiple players.

What This Means

Sequoia's decision signals a fundamental shift in how venture capital may operate going forward. If one of the industry's most prestigious firms can abandon its conflict-of-interest principles, others may follow. The traditional model of picking winners and backing them exclusively may be giving way to a new approach where large firms invest across entire sectors.

For Anthropic, the investment provides validation and resources as it prepares for an initial public offering that could come as soon as this year. The company is raising capital at a remarkable pace, with its valuation doubling in just four months.

For the broader AI industry, Sequoia's move suggests that venture capital is treating artificial intelligence differently than other sectors. The stakes are perceived as too high and the field too uncertain for firms to back a single player. Instead, they are diversifying their bets across multiple companies.

The decision also raises questions about whether Sequoia's historic stance against portfolio conflicts was ever as firm as the firm claimed. The Finix divestment in 2020 may have been an exception rather than a rule, a way to manage a specific problem rather than evidence of a deep commitment to avoiding conflicts.

What remains unclear is whether this new approach will prove beneficial for venture firms or whether it will create the very problems that led to the conflict-of-interest rule in the first place.