Sequoia Capital gets in on buyout deal; more to come?

Sequoia Capital partnered with Kohlberg Kravis Roberts & Co. to buyout the software division of Flextronics for $765 million last week. Sequoia will pick up 9% of the company, Flextronics will keep 15% and KKR will retain the remaining 76 percent.

Partnering with buyout shops is just one of the ways Sequoia is looking to make bigger bets. It has recently made two growth-type deals in the United States. Sequoia contributed to a $100 million investment in ITA Software, a 10-year-old private company that designs back-end processing programs for airlines. Sequoia’s involvement was led by Moritz, who sits on the company’s board. The other investors in the $100 million funding included Spectrum Equity Investors, Battery Ventures and General Catalyst Partners.

Sequoia also worked with Francisco Partners to put together a $42 million investment in June for Blue Coat Systems, a $200 million public company. The investment funded Blue Coat’s buy of the NetCache business from Network Appliance. Blue Coat picked up 1,000 blue chip customers from Network Appliance and technology to help it accelerate streaming media.

It’s not surprising that Sequoia would eventually get involved with buyouts. Buyout funds posted one-year returns more than double that of venture firms during the last quarter of 2005. Buyouts posted an IRR of 31.4% while venture garnered only 15.6%, according to Thomson Financial (publisher of PE Week) and the National Venture Capital Association.