Sure, but wouldn't it have made more financial sense for them to maintain some kind of position? Even if they gave up their board seat for the conflict of interest reasons, I would imagine that Sequoia has some kind of obligation to their investors to get some kind of return on that $21m.
Investors have access to and get privileged (material non-public) information constantly. Non-board members would have less overall and less complete information but there would still be some. Having any position introduces unnecessary risk for everyone involved.
Sequoia backing out and letting the company keep the money keeps everyone's hands clean and mitigates lawsuits or bad blood from everyone too.
Not ideal but probably "cheaper" in many, many ways.
No, because the conflict of interest wasn't the board position, it was that there is perceived to be a single pie that Finix and Stripe are trying to eat from. They have an obligation to help Finix get a bigger piece of that pie and an obligation to Stripe to do the same.
For their investors, their more important obligation is to protect their existing gains in Stripe instead of the $21m they put into a newcomer "by mistake."
Many other investment holding companies such as mutual funds own stock in competitors that are both trying to eat a single pie. It's not necessarily a problem as long as the investor maintains a "Chinese Wall" between their holdings and manages each one independently.
I don’t have all of the answers but my guess is they have something in their deal with one or both parties that doesn’t allow this. My guess is it is with Stripe and, after learning of the investment, Stripe immediately reached out with a “hey guys, WTF” email and this is Sequoia’s way of exiting the mistake quickly.
That’s my guess too. I’m guessing there was a provision attached to the Stripe investment precluding any investment in competitors. Sequoia may not have seen Finix at a competitor but Stripe did.
And if that’s the situation, the startup shouldn’t have to suffer because the lead investor messed up. Pulling out but letting the startup keep the money and get the board seats back is really the only correct move.
It’s not even clear that that’s necessary, at least for stakes in public companies, and at least under existing regulations. Berkshire Hathaway owns big chunks of all of the four largest US airlines, and smaller chunks of the big four US banks, and there’s no Chinese wall between Warren Buffett and himself.
Stripe is presumably close to dropping an S1 and wants to prevent another WeWork due-diligence finding that "our primary investor is building a competitor".
