Sequoia Capital plays Nostradamus again

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Sequoia Capital, a legendary 50-year-old venture capital firm, has become known over the years for alerting founders in its portfolio when the market changes, sometimes after the change has become somewhat, ahem, obvious.

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However, while it’s tempting to poke fun at the gear for these messages, it’s “rest in peace good times” in 2008 and his “Black Swanbecame legendary in March 2020 – with many teams right now wondering how long the current downturn could last, it’s no surprise that the legendary venture capital firm has prepared a new and very thorough presentation, warning them not to expect a quick bounce back.

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Indeed, in 52 slide presentation first published by The Information makes it clear that the firm does not believe that, just as it did at the start of the pandemic, when markets froze and then quickly recovered from deadlock, the abrupt shift the startup world is now experiencing “will be another steep correction, beyond which will be followed by a sharp jump. an equally fast V-shaped recovery.” The presentation said: “We expect the downturn in the market to affect consumer behavior, labor markets, supply chains and more. It will be a longer recovery and while we cannot predict how long it will last, we can advise you on how to prepare and move to the other side.”

In one key slide, the firm notes what many other venture capitalists (and the market itself) have already told startups, namely that the focus of investors is shifting towards profitable companies. The firm writes, “With the cost of capital (both debt and equity) rising, the market is signaling a strong preference for companies that can generate cash today.”

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In another slide, Sequoia takes pictures of some of the firms that have been heavily investing in startups in recent years (even though Sequoia itself has grown its assets under management significantly over the same period).

Reads one slide:[U]As in previous periods, sources of cheap capital will not save the situation. Cross-over hedge funds, which have been very heavily invested in private funds over the past few years and have been one of the cheapest sources of capital, are healing their wounds in their public portfolios, which have been hit hard.”

Sequoia’s founder presentation follows a number of similar tips from numerous venture capital firms that have advised their own portfolio companies. about the decline. Their advice runs the gamut, but mostly focuses on getting founders to focus on expanding their runway, consider additional rounds, and think about ways to spend money in a more disciplined way. Famed accelerator Y Combinator highlighted the current state of the world, advising the founders to plan for the worst and focus on being “alive by default”.

We have reached out to Sequoia for additional comments. This story is evolving. . .


Credit: techcrunch.com /

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