One of Silicon Valley’s most successful venture capital firms has warned portfolio firms to tighten their belts in the meantime, as the economy does not recover quickly.
In a 52-page presentation seen by CNBC, Sequoia Capital presented a set of risks that made it difficult for founders to raise and operate.First reported by informationWas announced last Monday by Sequoia partners Alfred Lin, Roerov Bota, Douglas Leon, Karl Eschenbach and others.
“I believe this is the moment of the crucible,” the presentation says. “First and foremost, we need to be aware of the changing environment and change our mindset to respond intentionally rather than regret.”
Sequoia, known for its early investment Apple, Google When Airbnb, Ringed the alarm bell ahead of other crises. The company said,RIP Good Times“As the economy collapsed in 2008 and was widely read.”Black swan“Early notes on the coronavirus pandemic.
In the latest, Sequoia points to persistent inflation and geopolitical conflicts, limiting the capabilities of “quick resolution” policy solutions such as interest rate cuts and quantitative easing.
Sequoia’s partner said in a Black Swan memo that he made a mistake in one factor. It is a “place of distortion” in the market, underestimating the post-Crisis monetary and fiscal policy response.
“This time, many of those tools have been exhausted,” the presentation said. “I don’t think this will be another abrupt fix, as we saw at the beginning of the pandemic, followed by a similarly rapid V-shaped recovery.”
Sequoia joins a choir of venture capital and investors on Twitter to warn founders about the current macroeconomic environment.
Lightspeed did it last week Blog post“The era of the boom of the last decade is definitely over.”
Technology companies that have grown tremendously during the pandemic have already taken steps to reduce costs in either way. Cut the job Or frozen employment.Klarna Said This week we plan to dismiss about 10% of the world’s workforce. Robin hood When Netflix.. Facebook parents Meta, UberWhen Nvidia Some companies are delaying employment.
Sequoia points this out as a potential silver backing for hiring, saying that “all fans are freezing employment.” The company urged its founders to consider projects, R & D, marketing, and other costs to reduce costs and prepare to avoid the “death spiral.”
“The fastest-moving companies have the most runways and are most likely to avoid the death spiral,” the memo said. “See this as a great opportunity. You will play your card correctly and come out as a powerful player.”
The stock market has been confused in recent months for fear of inflation, the war in Ukraine, supply chain problems, and the Fed’s move to raise interest rates. Sequoia points out that Nasdaq showed the third largest drawdown in 20 years and many high-growth stocks lost two-year price increases. For example, 61% of all software, internet and fintech companies trade below pre-pandemic levels.
“The era of rewarding super-growth at any cost is nearing its end,” said Sequoia’s memo, halving the overall revenue of software in the last six months. It is below the 10-year average. “It may not lead to your evaluation overnight, but in the medium to long term, disciplined, lasting growth will always be rewarded and will lead to a meaningful value evaluation.”
In addition, they warn that “cheap capital” has not come to salvation. Crossover hedge funds, which have entered the private market and venture investment in recent years, have “damaged the public portfolio that has been hit hard,” the company said.
Although the overall outlook is bleak, Sequoia offers a resilient founder opportunity outlook.Partner mentions Cisco With Google after the 1981 crash PayPal Surviving the dot-com bust, Airbnb escapes from the financial crisis, DoorDash Navigate the pandemic. The winners are those who are willing to face the challenge of “may have been obscured between the vibrancy and distortion of free capital over the last two years.”
Michelle Bailhe, a partner on Sequoia’s growth team, told CNBC that the appropriate cost savings for each company depend on the business and cash burn, not all of which will lead to a hiring freeze. In some cases, she says, “you can get stronger, so you should step into the gas of your core business.”
“The message we wanted to convey to the founders was that for the best companies, this should be your illustrious time, because when it’s easy for everyone to get funding and demand. Because you don’t see much of some strength, it’s a distinctive business and team. ” “The arena will become more and more demanding and will benefit the types of people who take full advantage of this opportunity.”