Renowned venture capital investor Roelof Botha, a managing partner at Sequoia, has sounded the alarm on what he believes is a brewing venture capital bubble, eerily reminiscent of the 2021 market crash. In a recent post on X, Botha warned that the least sophisticated investors are likely to get hurt the most, citing the resurgence of special purpose vehicles (SPVs) as a key indicator of an impending bubble burst.

Botha's warning is rooted in his observation of the growing popularity of SPVs, a structure that allows startup investors to sell access to a chunk of their shares to others. However, these new investors are not buying shares in the startup itself, but rather in the SPV, often at greatly inflated prices. This means that the startup's valuation would need to soar for some of the SPV share owners to break even, a scenario that Botha believes is unsustainable.

The trend is particularly pronounced in AI investing, where startups are raising astronomical sums. A search of SEC filings reveals at least nine SPVs tied to Anthropic since 2024 alone, with the company reportedly in talks to raise another $3.5 billion. Figure AI's attempt to raise $1.5 billion is also reportedly full of SPVs, according to The Information. Notably, neither company is in Sequoia's portfolio.

The proliferation of SPVs is not limited to a few companies. Nearly every major multi-billion AI company has investors offering SPVs, often with big-name VC firms like Andreessen Horowitz leading the deals. This can create a false sense of security among investors, who are lured in by the reputation of the leading VC firm, despite the deal's underlying risks.

One person involved in the secondaries markets described SPV-laden deals as "passing the hat on all the deals that can't find enough VC investors." This sentiment is echoed by Botha's warning to would-be investors: "Don't buy it." The implication is clear: investors should exercise extreme caution when considering SPV-based deals, lest they find themselves caught in the midst of a bursting bubble.

The warning from Botha, a seasoned investor with a deep understanding of the venture capital landscape, serves as a timely reminder of the dangers of unchecked speculation. As the venture capital market continues to evolve, it is crucial for investors to remain vigilant and avoid falling prey to the same mistakes of the past.

While Sequoia did not immediately respond to a request for further comment, Botha's warning is a stark reminder of the importance of prudence and due diligence in the venture capital space. As the industry hurtles towards what could be another brutal year of failed startups, investors would do well to heed Botha's warning and approach SPV-based deals with a healthy dose of skepticism.