Sequoia's latest warning shot for founders

Sequoia’s latest warning shot for founders


Next week, another message for startups that good times are dead.

This time the report comes directly from the original authors of the RIP Good Times in 2008 – Sequoia Capital.

The venture giant – known for investing in technology titans such as Apple, Uber and Google – shared a 52-slide presentation via Zoom on May 16, which warned of a “critical moment” of uncertainty for the venture market due to inflation. markets and geopolitical issues, said The Information, who also reviewed the presentation.

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Sequoia told the founders not to expect the “rapid V-shaped recovery we saw at the beginning of the pandemic,” and suggested widening the runway and exploring their businesses due to excessive costs.

“Don’t see (cuts) as a negative, but as a way to save money and run faster,” Sequoia wrote.

A company based in Menlo Park, California, is in the habit of issuing warning signals to its portfolio companies. In addition to its 2008 presentation, which warned of the effects of the global financial crisis, Sequoia also wrote another report in 2020 entitled “Coronavirus: The Black Swan of 2020”.

It is interesting to note that despite the warnings, Sequoia is on the pace to invest more in the first half of this year than last year, according to Crunchbase. In the first half of 2021, the company placed 85 bets on startups, while in that calendar year it had already made 76 investments.

No new messages

In recent weeks, Sequoia has become the newest known company to send red flags to its founders. Last week, the Y Combinator starting accelerator delivered similar sentiment to its companies.

“No one can predict how bad the economy will be, but things are not looking good,” YC wrote in a letter to the founders of his portfolio last week entitled “Economic Downturn.” TechCrunch was the first to inform about the content of the letter.

“The safe step is to plan for the worst,” the accelerator wrote.

Earlier this month, SoftBank announced that it would be much more selective in investing after announcing a $ 27.7 billion loss on investments in its Vision Fund for the just-ended fiscal year.

All this was preceded by reports at the beginning of the year that large crossover companies such as Tiger Global and D1 Capital were also giving up late investment.

The venture capital market has already shown some softness and declined quarter-on-quarter for the first time in the first quarter of 2022.

The slowdown in the private market is a reflection of the decline in many technology stocks, including Netflix and Meta, in the public market. These losses can make it harder for venture capital companies to raise money from LPs and also force some large growth firms to put their money on the public market instead of the private one in search of bargains.

The market downturn has been compounded by persistent problems with inflation, interest rates and geopolitical unrest, which have made it more difficult to raise risky dollars.

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Illustration: Li-Anne Dias

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