Sequoia Capital plays Nostradamus again.


Sequoia Capital, a venerable 50-year-old venture, has been known for years using the full memo to warn the founders of its portfolio of market changes after the changes have become somewhat apparent.

I still feel like laughing at this letter, though — “RIP good time” 2008 and its “black swan“The March 2020 memo has become a legend. Currently, many teams are wondering how long the current recession can last. So it’s no surprise that this outfit constituted a new and very thorough presentation to many of the founders associated with the company. Don’t expect a quick rebound.

actually, 52 slide presentation The company, first published by The Information, said that after the drastic change the startup world is currently experiencing, just as markets froze and then warmed up quickly during the early days of the pandemic, “equally rapid V-shaped recovery.” , the labor market, supply chain, etc. Recovery will take longer and we cannot predict how long it will take, but we can advise you on how to prepare and get through the other side.”

In one key slide, the company mentions what various other VCs (and the market itself) have already said about the startup. In other words, the investor’s focus is shifting to profitable companies.

The company writes: “As the cost of capital (both debt and equity) rises, the market today is showing a strong preference for cash-generating companies.”

In another slide, Sequoia describes some companies that have been aggressively investing in startups in recent years (although Sequoia itself has increased its assets under management significantly over the same period).

Read the slide: “[U]As in the previous period, no source of cheap capital comes to save the day. Crossover hedge funds, which have been very active in private investment over the past few years and have been one of the lowest cost sources of capital, tend to hurt public portfolios that have been hit hard.” (We reported earlier this month that Tiger Global, the most active investor in the first quarter of this year, was delaying its rollback for a variety of reasons, including nearly depleting its $12.7 billion fund announced in March.)

We have contacted Sequoia for further comment.

Sequoia’s presentation to the founders follows similar advice from a number of startups who have been speaking wisely to their portfolio companies about the downturn. Their guidance ran all the territories, but primarily focused on getting the founders to focus on runway expansions, consider expansion rounds, and think about how to spend in a more disciplined way.

Renowned accelerator Y Combinator has been particularly noteworthy about the current state of the world, and last week he told the founders to prepare for the worst and focus on “the default.”

In a letter titled “The Economic Recession,” the company said, “If you plan to raise funds within the next six to 12 months, you can finance the peak of the recession.” “Remember that even if a company does well, the odds of success are extremely slim. It is better to change the plan.”

Meanwhile, Bill Gurley warning On Twitter over the weekend, “The cost of capital has changed substantially and if you think the situation is the same, you’re heading to the same cliff as Thelma and Louise.”

Leave a Comment