Sequoia Capital, arguably the smartest venture capital investor in business, is sounding the alarm and asking its portfolio companies to buckle down for what could be the worst economic downturn of their relatively short lives.
The fund organized a meeting yesterday where it invited entreprenuers/CEOs from its portfolio companies. The attendees were greeted by a cute image of a Grave Stone, with a message: R.I.P.: Good Times.
The message delivered to those in attendance was that things could get a lot worse than people think, and it will be a more protracted downturn. To give a historical perspective, Sequoia had a similar meeting back before the last bubble
unraveledburst. We know how that turned out.
Many Silicon Valley companies have been wondering how or if the larger economic crisis may affect them. This is perhaps the surest sign yet that theres no if. It comes at a time when Ron Conway, Silicon Valleys most prominent angel investors, sent a similar warning to his own companies. Conway was burned badly by the last downturn, and it took him years to claw out of it.
Startups are being told to cut expenses, and somehow survive a downturn that the firm thinks may last years. This wasnt just general advice presenting partners went through various components of company operations and specified how to cut.
Theres opportunities and risks in this marketplace, as weve covered previously, and this could be a case of Sequoia being overly cautious, after all, its better to make these calls now and prepare for the worst, rather than waiting for it to happen. However, who am I to argue with a team like Sequoia. The sky is falling. Start panicking.
I would be more impressed if Sequoia hadn't pulled this act before when the last bubble burst. True, they called the movement of the market. But it's conventional wisdom today that the economy is tanking. But what does the economy have to do with the startups Sequoia funds? The whole point of venture capital is to nurture companies that need capital. Part of the art of investing in startups is knowing when to push them out of the nest. Templated cost-cutting advice, applied across Sequoia's portfolio, is hardly a value-add.
I'm just guessing at [Michael] Moritz's game, but ... How convenient that this scare-tactics summit was held just a month after Sequoia raised $1.7 billion in new funds. While everyone else is hunkering down, Sequoia will cull the weaklings from its portfolio, double down on the winners and profit before anyone realizes the good times are back. Well played, Michael, well played.
Get over yourselves. If you have a good business, [this is] ridiculous in the timing ... at this point, it reeks of panic and fear.
I have been telling any of the CEOs that will listen to me, to THINK about how we turn this panic into an opportunity. We all have weak investments and weak CEOs ... Anyways, I am poor and they are rich, so thats that. So while the rest of the world panics, you can panic too, or you can take a few steps back and remember how fortunate you are to be reading this blog.
I am not here to hold your hand and say everything will be hunkeedoree ... You need to gut up, and know what your risk tolerance is. If you dont, the market will bust you up.
The panic and desperateness we see now isnt just a result of financial loss. Its even more the result of the feeling of loss of control. Those that felt they were on top of the world are painfully realising that there never was control. The attitude and feeling may have been there, but in this crisis we find that control was only fictional, and even that is gone. And it scares everyone.
In times like this we need real leadership. People that understand the complexity and dangers of this crisis but at the same time try to make the best of it ... Leaders know what to do and lead the way for us. They do not panic, but simply deal with the situation ... This is the time were you will find if someone just had a great appearance or is actually a leader.