Venture Capital Outlook

Lean, mean, and survive.

Today, Sequoia Capital hosted a mandatory CEO All-Hands Meeting on Sand Hill Road (where else?). There were about 100 CEO’s in attendance and let me tell you, the mood was somber. I’m not one to perpetuate doom and gloom or bad news, but let me underscore this for you: We are in a serious economic downturn and this is just the beginning. Immediate, decisive and swift action is required, along with frugal, day-to-day management of expenses and our business is required.

Speakers:
Mike Moritz, General Partner, Sequoia Capital (he moderated the speakers).

・ Eric Upin, Partner, Sequoia Capital (Eric ran the $26-Billion Stanford Endowment Fund and knows a few things about Economics and investing.)

・ Michael Partner, Sequoia Capital (Michael was recruited to start Sequoia’s very first hedge fund, coming from Maverick Capital and Robertson Stephens. I know him from my BEA days.)

・ Doug Leone, , General Partner, Sequoia Capital

Slide projected on the huge conference room screen as people assembled inside the conference center to take their seats: a gravestone with the inscription: RIP, Good Times.

Mike Moritz:

・ The only time Sequoia’s assembled all CEO’s like this was during the dot.com crash.

・ We are in drastic times. Drastic times mean drastic measures must be taken to survive. Forget about getting ahead, we’re talking survive. Get this point into your heads.

・ For those of you that are not cash-flow positive, get there now. Raising capital is nearly impossible if you’re too far off of cash flow positive.

・ There will be consequences for those who hesitate. Act now.

Eric Upin:

・ It’s always darkest before it’s pitch black.

・ Survival of this storm means drastic measures must be taken now, so you will have the opportunity to capitalize on this down turn in the future.

・ We are in the beginning of a long cycle, what we call a “Secular Bear Market.” This could be a 15 year problem. [many slides on historical charts of previous recessions, averaging 17 year cycles.]

・ The credit market [versus the Equity markets] are the issue and will take time to recover.

・ Inflection point: Make changes, slash expenses, cut deep and keep marching. You can’t be a general if you turn back.

・ This is a global issue and not a ‘normal’ time.

・ There is significant risk to growth and your personal wealth.

・ Advice:

o Manage what you can control. You can’t control the economy, but you can control everything else.

§ Cut spending. Cut fat. Preserve Capital.

§ Don’t trust your models and spreadsheets. All assumptions prior to today are wrong.

§ Focus on quality.

§ Reduce risk.

Michael Beckwith:

Note: Michael had a lot of slides that were charts, data points and comparisons.

・ A “V” shaped recovery is unlikely [√]

・ Cuts in spending will accelerate in Q4/Q1. Look at eBay-this is just the beginning.

Doug Leone:
This is a different animal and will take years to recover.

・ Getting another round if you’re not profitable will be rough.

・ Do everything possible to get to cash flow positive. Now.

・ Nail your Sales and Marketing message.

・ Pound your competitors shortcomings. They’re hurting and they will be quiet. Take the offensive.

・ In a downturn, aggressive PR and Communications strategy