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Sequoia injects $195 million into an ever-eager seed environment

Sequoia Capital, a storied venture capital firm, announced today that it has launched a $195 million dedicated seed fund, its fifth. The vehicle will be used to back founders across the United States and Europe; the capital will also be used to invest in future cohorts or its Arc program, an internal Sequoia initiative that invests between $500,000 and $1 million into rising founders across the world and that's currently accepting applications.

The capital comes as the pre-seed and seed world, already a growing part of the startup ecosystem, becomes even more attractive to investors who want to steer clear of the turbulence of the later-stage market. AngelList data, released today, tells part of the story, noting median pre-seed valuations held consistent quarter over quarter last year while later-stage deals, such as Series B, fell by nearly a third.

Jess Lee, a Sequoia partner and All Raise co-founder, said on Twitter that the firm will be looking at all verticals for potential outlier founders, but specifically called out artificial intelligence and consumer social as two areas she’s investing in.

In a blog post announcing the seed fund, other partners similarly hinted at areas of interest. Alfred Lin pointed to augmented reality and virtual reality as the makings of the “next consumer platform to drive wide-scale innovation." Shaun Maguire said that “hardware will always have my heart.” Roelof Botha, the recently appointed global head of Sequoia, kept it simple, writing in the post that he’s looking for founders who are taking advantage of a more disciplined market, and the decreasing cost of automation, artificial intelligence and even genetic sequencing.

In an email exchange this morning, Sequoia partner Stephanie Zhan said that it's "never too early to partner with Sequoia. We want to meet founders right at the beginning of their thought process" and to "play an active role early on: fleshing out ideas, posing questions as food for thought, introducing them to potential customers, and dreaming together about their vision."

Zhan noted that Sequoia has written seed checks into a number of once-fledgling startups that developed into major brands, including Airbnb (Sequoia initially invested around $600,000 in the company); Dropbox (it plugged in around $950,000 early on) and Nubank ($1 million).

Zhan observed that Sequoia also partnered with the still-private payments giant Stripe "when they didn’t have a single line of code"; it was the first investor in WhatsApp; and Palo Alto Networks and YouTube were incubated at its offices.

Sequoia, like many firms, has seen its portfolio humbled during the downturn, which may impact how partners are handling due diligence and sourcing in the year ahead. Just this past week, Sequoia-backed company GoMechanic cut 70% of its jobs, with its founder admitting in a LinkedIn post that the outfit made “grave errors in judgment as we followed growth at all costs.”

Other Sequoia portfolio companies with sizable cuts include Bounce, Ola and well, FTX. Indeed, Sequoia’s $200 million investment in FTX has brought fair criticism to the firm’s decision-making track record.

Lin, who TechCrunch’s Connie Loizos interviewed last week at her StrictlyVC event, said the experience hasn’t soured Sequoia’s interest in crypto. Though he said that just 10% of Sequoia’s crypto fund has been deployed one year after it was launched, he added that Sequoia remains “long-term optimistic” about crypto.

Lin also told Loizos that "not-so-fun years are the best times to invest, because all of the tourists are gone," a sentiment that Zhan echoed today in her exchange with TC.

Wrote Zhan: "The end of the frothy market of recent years is a positive. Constraints breed creativity and discipline. Many of today’s most transformative companies were founded during periods of uncertainty, and we believe the same to be true now."