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Sequoia Capital memo to their portfolio founders on Coronavirus
- yodon 7y agoFeels like a pretty casual email when compared against their 2008 RIP Good Times presentation[0] [0]https://www.sequoiacap.com/article/rip-good-times https://www.sequoiacap.com/article/rip-good-times
- creaghpatr 7y agoNo pictures of knives in dead animals this time at least.
- hackerbee 7y agoAlthough a ham certainly qualifies as a 'dead animal', this was not the image which came to mind when I read this comment.
- creaghpatr 7y agoTrue, it wasn't that gruesome, but that was my first time scanning the preso and it kind of jarred me.
- justinzollars 7y agoIn 2003 SARS was a catalyst for Taobao in China. Will Coronavirus be good or bad for your startups?
- simplyinfinity 7y agoCan you elaborate how and why was that?
- justinzollars 7y agoThe details are in the book, Alibaba: The House That Jack Ma Built
- batchfile 7y agoThat RIP goodtimes presentation is eerie to look at right now.
- mattrp 7y agoI was a cofounder when rip good times came out. We were not a sequoia company but in hindsight we were really appreciative they published their advice publicly. Our team happened to be at a quarterly offsite when it came out. I remember we fiercely debated whether or not to believe it but we eventually came out of the offsite taking action - we cut founder salaries significantly, cut other non essential priorities, adjusted our forecasts and expectations and had an all hands meeting where we informed our employees that we’d extended our runway by another year and the cuts we’d made were to preserve their roles. Things turned out nearly exactly as sequoia predicted - we had just enough cash to grow the business, keep everyone on board, and get to an exit without raising another round. I’m hopeful coronavirus won’t be as bad across the board but I would strongly think about my alternatives before betting against sequoia.
- thinkingkong 7y agoEffectively, your model is about to get real world stress tested. Depending on your vertical, or your target market you're going to see out-sized impacts either positive or negative. Either way, set a good runway for cash and stay vigilant. Personally I think a situation like this is a fantastic exercise and a great time to be building a company. Not that I would wish it on anyone, but these kinds of constraints breed an incredible set of solutions. 2008-2010 created a bunch of interesting companies.
- mistymountains 7y agoThis reads like a parody.
- icedchai 7y agoYes, let's get real: prepare for layoffs and down rounds.
- georgeecollins 7y agoNot to me. Many of the best companies are founded or hit their stride in weak economic times. If a startup needs a booming economy to keep growing it may not be that good of a business. That said, I am not wishing layoffs on anyone. But if you don't accept bad times along with good times you are not really a market capitalist.
- jseip 7y agoAgreed. Constraints force innovation. On the whole, Coronavirus is an unfavorable turn of events for the global economy but many companies will be stronger for it.
- kirykl 7y agoPrime time for a drone delivery startup
- api 7y agoIf this gets super serious I could see it really tip telework into the mainstream and be good for essentially anything that helps with that: SaaS, network virtualization, remote access, file and resource sharing, p2p transfer and communication tools, and so on. I'd like to make a side comment that this kind of talk should never be misheard as celebration of misfortune. It's just that given the misfortune it's good to ask how it will affect the market. It's no different if the change is something great like a natural resource windfall, the end of a war, etc.
- deleted 7y ago[deleted]
- empath75 7y agoThey're not saying it explictly, but when they talk about cutting costs now, they mean laying people off.
- btowngar 7y agoThey _are_ saying it explicitly: Headcount. Given all of the above stress points on your finances, this might be a time to evaluate critically whether you can do more with less and raise productivity.
- totalZero 7y agoThis wouldn't be described as a "black swan" if Donald hadn't pushed us into a rally that wasn't backed by real earnings growth. We are not in a "black swan," we are in the Trump bubble. Eventually people will open their eyes and identify this. Rate cuts to protect the price of stocks in an election year. Denial of obvious facts. Repeated messaging about how strong the economy is. A press conference focused more on the stock selloff than the viral outbreak. This isn't some kind of tail event. The real tail event is the three-year rally that untethered asset prices from corporate earnings. That is the gas leak in our basement; the coronavirus outbreak is but a spark.
- robk 7y agoPlease check your trump derangement syndrome
- totalZero 7y agoMy view on the market is totally uncorrelated to whom I voted for or plan to vote for in the future. When large-cap stocks are down 20% from where they are trading now, come back and read my comment again. I've been long puts on AAPL since January, hedging my position and rolling my strike throughout the volatility. You guys can feel free to downvote me, but you should at least educate yourselves. Go compare AAPL's revenue vs its market cap for the past 5 years.
- JumpCrisscross 7y ago> compare AAPL's revenue vs its market cap for the past 5 years Price to revenue is one of many valuation metrics. (For profitable companies, it is a poor first metric.) And every metric must take into account opportunity cost, i.e. interest rates. A P/E of 25 amidst 10% rates is different than amidst 1% rates. In any case, irrespective of where the market was when the virus hit, it would have gone lower. A pandemic in 2008 or 2020 will drag asset prices down because it drags earnings and thus cash flows down.
- 7y ago
- cs702 7y agoVery sobering. If more companies follow Sequoia's advice and quickly decide to cut or postpone spending in anticipation of a potential slowdown, their vendors and employees will react by cutting or postponing their own spending, leading yet others to do the same, fueling a sudden and self-reinforcing feedback loop of global contraction in economic activity. Perhaps the stock market is pricing such a dire scenario. Let's hope it doesn't get that bad.
- WanderPanda 7y agoMaybe this is needed from time to time, to filter good and bad ideas / behaviour.
- bigmattystyles 7y agoI'm guessing you were being facetious, but in case you were not, certainly, it's better to let individual companies fail over time at the expense of localized loss/capital rather than decimate the system just to see who survives. For one, you might be killing companies with actual promise in their infancy. Second, when only one among many fails, it may be slower to identify losers but there are landings for those who suddenly find themselves out of job. And even when things are good, finding yourself without a job is still traumatic.
- samsonradu 7y agoWell that’s the thing, the economy seems to fall out of balance too often. It’s either WeWork times or decimating-the-system times. Don’t we need the middle ground more, where the good companies can stand out? Is this a political or a central-bank policy issue?
- bigmattystyles 7y agoI'm not sure, it's easy to think of the boom times and the awful bust times, but we've had plenty of 'meh' times, i.e short recessions / contractions around the globe. I'm not an expert and I always fear I have just enough knowledge to believe I know what is going on. However, I did buy into the argument that, at least in the US, slashing interest rates and giving a huge tax cut during the boom of the last few years was a bad idea. A bad idea since, there isn't much left to cut or slash when times turn bad or some external event (like coronavirus) throw a ton of uncertainty into the mix. I wish you could set up tax rates / fed rate on an automated control feedback system. It's probably why until recently, the fed had been kept insulated from politics, but obviously, even if they were not being politicized of late, it's not that simple.
- intuitionist 7y agoCalling COVID-19 a “black swan” is an abuse of the term, IMO. Zika in 2016, Ebola in 2014, MERS in 2012, H1N1 in 2009, SARS in 2002, HIV in 1980, H3N2 in 1968, H2N2 in 1957.... A viral disease outbreak, like a stock market crash, is very hard to time precisely, but everybody knows that it’s a thing that happens regularly. That’s the exact opposite of a black swan; if it’s something you didn’t plan for, well, that’s on you.
- mc32 7y agoBy your definition it seems a meteor strike of consequence would not be a black swan event because we know they have happened and we know they will continue to happen. I guess to make it useful we have calibrate the meaning to actually mean something useful that we can understand.
- intuitionist 7y agoI count four pandemics in my list that would have occurred in the lifetime of many of Sequoia’s GPs. That’s a base rate many orders of magnitude higher than significant meteor strikes.
- edmundsauto 7y agoBlack swans, by definition, are things that we could not have predicted. That where the power lies -- they change everything. Rare events like viral outbreaks are probably not in this category. That doesn't mean they aren't impactful or relevant, but OP is right - they're not a black swan, in the definition created by Taleb.
- sweeneyrod 7y agoCOVID19 has probably already killed more people than Zika or SARS or MERS and seems very likely to kill more people than the recent Ebola outbreak (unless there is some reason to believe it's going to stop spreading very soon). Its mortality rate is 10x that of swine flu. HIV/AIDS very much was a black swan.
- 7y ago
- PeterStuer 7y agoI wonder if they are going to finally be willing to pay taxes after they dump all those people. /s
- nnq 7y agoUnpopular opinion: people could stop trying to speculate everyt-f-thing and amplifying the negative consequences of everything! Stop trying to "prepare" for stuff or, worse, to speculate as to take advantage of stuff happening! Just accept that there will be a temporary extra increase in mortality, and move one, carry on all life and economic activity as if nothing much happened, because it didn't! Promptly silence the panic mongers. "Live and let die", so to say, until solutions (vaccine, drugs) come to market. Paraphrasing what a wise American once said in a sad September day: go about you business! go shopping! (ok, maybe do more of it online, but whatever...) In this particular case, even the orange guy has a better/healthier attitude towards this and more sense than VCs and the stock markets!
- ur-whale 7y agoBecause you clearly know better.
- s_gourichon 7y ago"and (the parent comment author) promptly disappears in a puff of logic." Ref: https://tvtropes.org/pmwiki/pmwiki.php/Quotes/PuffOfLogic https://tvtropes.org/pmwiki/pmwiki.php/Quotes/PuffOfLogic
- cynusx 7y agoIn a way I find these calls to their portfolio a bit strange, after all it's because VC is enabling these companies to run beyond their fundamentals that they could be in problems during downturns. Businesses running on tight budgets and well within their revenue are inherently more resistant to shock. In this case the shock is economy-wide but you could have shocks that affect only the tiny segment of the industry that you are in. e.g. new regulation, PR disasters, supply chain disruptions, ... They're also more efficient from a return on equity perspective. It's just a better way to build a business with the only exception being that you might have to raise a lot to compete or to fundamentally deliver your value proposition.
- bsaul 7y agoI may live in a bubble, but i keep asking myself why politics and media are so alarmed about this virus. There is such a huge gap beyween actual numbers and precautionary measures that i start to hear people say the only explanation is that politics are hiding the real numbers. For me, i keep thinking they’re just covering their ass, but did i miss something ?
- downrightmike 7y agoThe market and economy haven't actually improved since 2008, the Federal Reserve has been pumping money in. The inflation estimates no longer include food or gas. Average home price is $350k now vs $250 in 2008 and we have a major homeless epidemic. Which once someone in that population is sick, they'll all be sick and they are concentrated in major cities. And Covid-19 illustrates just how fake and how little we've really recovered. It is really highlighting the problems that aren't getting resolved. Basically exposing all the sharp rocks under the boat that we're about to crash on.
- jariel 7y agoNo, the reaction is reasonable so far. 1) We know it's a fairly dangerous virus 2) We know it spreads easy enough 3) We know enough people get 'really sick' and require highly specialized medical intervention, enough that without controls it will totally overwhelm medical facilities. 4) We know that in order to stop the spread, you basically have to quarantine cities, shut down factories, have everyone everywhere wearing masks - have a look at Wuhan, it's like a ghost city. 5) The city went from a small number of cases to thousands quickly 6) Italy, Iran and S. Korea have seen small numbrers of cases explode and medical facilities are being overwhelmed in some spots. 7) Small numbers of cases in any country could easy grow into what we see in other countries. 8) The precautions taken in the West are mostly refusing travel from some areas, checking the health of others, focusing hard on those testing positive, ramping up testing abilities, getting the medical system prepared for the worst, trying to keep people from panicking. Corona is pretty scary - if it 'gets out' in America it's going to cause serious social upheaval and damage. It will be scary, especially because many people have no health insurance. A long term existential question will arise if America isn't able to treat those without coverage - it's basically untenable. If people start to die in any numbers in America because they don't have coverage, it will imply a major upheaval of healthcare in the country to the point wherein I think some kind of socialized medicine will have to happen.
- DataDrivenMD 7y agoTL;DR - If you are a hard-working entrepreneur, let this be a reminder that we're prepared to abandon you when the global economy is in recession. We expect you'll pay it forward by treating your hard-working employees the same way. If you follow our lead, your company may survive long enough to raise money from our firm in the future. This thought leadership blog post is an example of our founder-friendly approach, and demonstrates how we add value to our portfolio companies. Objectively speaking the advice is prudent. Still, someone should tell their marketing team that this piece is seriously off-brand. It signals to entrepreneurs that the firm's messaging around the notion that "People Build Companies" is not to be taken seriously.