Embracing Production Capital: Do It Like Sequoia

Antonis Argyros
5 min readNov 11, 2021


The days of funding for the sake of return seem long gone. More and more venture capital firms switch from a pocket to a backer of continuous growth and innovation. The benefit is two-fold: more and better tech companies, and a ceaseless self-funding source for the VC firm itself. But how did this all start?

We’re in the midst of a SaaS storm, where most new software companies are SaaS companies and most older companies try to become one. New products are built constantly and founders receive enough checks to get them started much faster than ever before due to their potential. investors and VC firms need to keep up with the times as venture capital is turning into a commodity. The battle for which firm will add a possible unicorn to their portfolio is real, giving startup founders the advantage to choose among several funding sources and go with the one that offers more than capital: connections, guidance, and operational support.

This shift in dynamics gives rise to two different but associated concepts. First, that of Production Capital, which was introduced by Carlota Perez, the author of Technological Revolutions and Financial Capital, and it connects the necessity of knowing about the product to the investment’s potential to succeed. Second, that of the Operational VC, which is the next generation of VC firms that aims at accelerating their startups’ growth.

What is production capital?

To better understand the value of production capital, it makes sense to start with its counterpart, the Financial Capital. It refers to money or other paper assets that can be expanded by purchasing deposits, stocks, bonds, derivatives, and so on. People who concentrate on financial capital want to earn interest, dividends, or capital gains, and their goal is to accumulate wealth in the form of money and grow it. Consequently, it focuses on new and trending technologies that are just emerging and could turn into profitable businesses, even if that means that there is very limited knowledge around the product and the way it functions.

Production capital, on the other hand, re-invests in successful products to improve them and take them to new markets. This is a model followed by some of the largest tech companies in the world, such as Apple, Google, and Facebook, and given their course, its value is obvious. People and companies who focus on production capital, produce in order to produce more, as their goal is to collect ever-increasing profit-making capability by expanding through investment in innovation and development. Therefore product, process, and market knowledge are the bedrock of potential success for production capital.

There are cases where the two forms of capital work together, with production capital being recognized as the wealth-creating agent, while finance capital is acknowledged as the facilitator. This synergy could lead to innovation and expansion across the whole productive spectrum. However, according to Perez, there are instances where the two collide. Some of the paths taken by production capital, which is still backed by finance capital, include technological outstretching and geographic movement. Profits find fewer outlets for profitable investment, thus becoming “idle money” and as a result, financial capital begins to hunt for new profitable or interesting things to do.

What is an Operational VC firm?

Starting with the concept of the Operational VC will help make the connection with that of the production capital. The investors behind operational VC firms aim at supporting founders and their startups in as many ways as possible besides providing the capital. Some of the most successful examples that implemented the operational approach are Andreessen Horowitz with a16z, Kleiner Perkins, GV, and Sequoia, all of which have in-house teams that are dedicated to providing hands-on support to their portfolio companies in any area needed.

Providing operational or hands-on support can actually turn you into a helpful investor. The whole point of the operational support concept is to boost fund performance. To begin with, it assists portfolio founders in learning and improving their businesses, enhancing their chances of success. The hands-on support provides founding teams with the expertise and experience they need, from product to recruitment, marketing to business development, which is especially important in the early phases when resources are limited. An operational VC can help entrepreneurs expand quicker and boost their chances of raising the next round by providing them with resources and experience from within the business. As a result, embedding an operational support philosophy into the VC’s DNA improves the quality and quantity of deal flow.

Operational VC firms acted as a catalyst for technological innovation as they accelerated their portfolio companies’ growth much faster than traditional VC firms ever could. The success of each company that manages to become profitable, generates cash flow for the firm, which can later be invested in new, developing startups. This creates a perpetual loop, allowing proceeds to flow back to the firm itself.

The case of Sequoia

A very recent example of this transformation from financial capital to production capital is Sequoia, which announced the creation of The Sequoia Fund. As Sequoia Partner Roelof Botha wrote on Medium: “Our LPs will invest into The Sequoia Fund, an open-ended liquid portfolio made up of public positions in a selection of our enduring companies. The Sequoia Fund will in turn allocate capital to a series of closed-end sub-funds for venture investments at every stage from inception to IPO. Proceeds from these venture investments will flow back into The Sequoia Fund in a continuous feedback loop”. This is the core of the concept of production capital and the way it works, to move from short-term investments to creating long-term value.

Ready to evolve?

Not every VC firm has the resources to become the next a16z or Kleiner Perkins. That shouldn’t be an obstacle to adopting an operational approach. While you keep focusing on what you know and do best, Vesquad adds its secret sauce to the mix: an operational layer on top of your current structure, that will support your internal needs during the transition towards an operational model. With 20+ years of experience in venture building, our team can help you set up a robust framework so that you can support your investments in a scalable way. We’ll not only support your core team to cover the critical needs of your organization but we’ll also enable your organization to provide hands-on support to all portfolio ventures.

Basically, we’ll guide, train, and deliver for you the exact amount of support that your investments require in order to grow through a one-stop-shop approach. The Venture Support framework of Vesquad has been successfully implemented in early-stage investment funds and innovation labs in Europe and North Africa and in 2022 we’re expanding our activity to Japan. Book now your free consultation with one of Vesquad’s experts and join the new era by evolving into an Operational VC!



Antonis Argyros

Serial entrepreneur with 22+ years of experience in building from scratch and running tech ventures.