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Sequoia Capital plays Nostradamus (again) – TechCrunch



Sequoia Capital, the storied, 50-year-old enterprise agency, has change into recognized through the years for warning the founders in its portfolio when a market has shifted, generally after that shift has change into considerably, um, apparent.

Nonetheless, whereas it’s tempting to poke enjoyable on the outfit for these missives — its “R.I.P Good Times” in 2008 and its “Black Swan” memo in March of 2020 have change into legendary —  many groups are questioning proper now how lengthy the present downturn might final, so it’s not stunning that the storied enterprise agency has put collectively a brand new and really thorough presentation, warning them to not count on a fast bounce again.

Certainly, in a 52-slide presentation first revealed by The Data makes clear the agency doesn’t consider that, as in the course of the outset of the pandemic, when markets froze — then shortly grew to become unstuck — the abrupt shift the startup world is at the moment experiencing “going to be one other steep correction adopted by an equally swift V-shaped restoration.” Reads the presentation, “We count on the market downturn to influence client conduct, labor markets, provide chains and extra. Will probably be an extended restoration and whereas we are able to’t predict how lengthy, we are able to advise you on methods to organize and get by means of to the opposite facet.”

In a single key slide, the agency notes what startups have already been informed by all kinds of different VCs (and the market itself), which is that traders’ focus is shifting to firms with profitability. Writes the agency: “With the price of capital (each debt and fairness) rising, the market is signaling a powerful choice for firms who can generate money at present.”

In one other slide, Sequoia takes photographs at a few of the corporations which were investing aggressively in startups in recent times (at the same time as Sequoia has itself grown its property beneath administration significantly throughout the identical interval).

Reads one slide: “[U]nlike prior durations, sources of low-cost capital usually are not coming to save lots of the day. Crossover hedge funds, which have been very lively personal investing over the previous couple of years and have been one of many lowest value sources of capital, are tending to their wounds of their public portfolios, which have been hit arduous.”

Sequoia’s presentation to founders follows a string of comparable recommendation from quite a few enterprise corporations which have provided recommendation to their very own portfolio firms about the downturn. Their recommendation has run the gamut however largely focuses on getting founders to concentrate on extending their runway, take into account extension rounds and desirous about learn how to spend in a extra disciplined style.

Famed accelerator Y Combinator has been notably pointed in regards to the present state of the world, telling founders final week to plan for the worst and concentrate on being “default alive.” 

“In case your plan is to boost cash within the subsequent 6-12 months, you could be elevating on the peak of the downturn,” the agency mentioned within the letter, titled “Financial Downturn.” Bear in mind, it mentioned, “that your probabilities of success are extraordinarily low even when your organization is doing nicely. We suggest you modify your plan.”

In the meantime, Invoice Gurley warned over the weekend on Twitter that “The price of capital has modified materially, and should you suppose issues are like they have been, then you’re headed off a cliff like Thelma and Louise.”

We’ve reached out to Sequoia for additional remark.

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