In an unusual move for a venture capital firm, Sequoia Capital has parted ways with a company over a conflict of interest, and in doing so, has given up $21 million, according to a report.
The firm separated from Finix, a payments infrastructure company, Finix told its employees on Monday morning.
Sequoia led the led the company’s $35 million Series B round last year. Finix has 70 employees.
Finix told employees the reasoning was Sequoia thought the business was too directly competitive with Stripe, another payments company which represents one of Sequoia’s biggest private holdings. The venture capital firm is one of Stripe’s biggest investors.
Sequoia Capital allowed Finix to keep its capital, which materially strengthened Finix's balance sheet. Now, earlier investors in the company, such as leaders Inspired Capital of New York and others including PSP Growth, have invested an additional $10 million into the company. Finix has now raised $65 million in capital altogether.
The new arrangement sees Penny Pritzker, co-founder of Inspired Capital and the founder and chair of PSP Partners, joining the Finix board. Inspired Capital Co-Founder Alexa von Tobel has joined as a board observer.
It is unclear how Sequoia didn’t realize the similarity in the two companies’ business models before signing on to fund Finix. For its part, Finix has told news outlets that it considers itself primarily a payment infrastructure company, which might not have competed much with Stripe. The reasoning is that Finix does not take a percentage of transaction fees. Instead, it charges a monthly fee for monthly software and a sliding fee for the number of payments processed.
A source close to the situation thought Sequoia may have moved too hastily in this endeavor, TechCrunch reported, and that Sequoia could have worked things out by talking to the companies in question.
Sequoia has not backed out of a deal of that kind in its history, and the venture capital firm declined to comment on the matter to reporters.