Posts tagged with: Doom & Gloom

Sequoia Capital Presents Doom and Gloom: R.I.P Good Times

posted by   Ian Wyatt   |    November 11, 2008

Posted in   Venture Capital   |   Comments

Over lunch today with Daniel of the Vermont Center for Emerging Technologies, we were talking about Zappos and their plans to cut 8% of their workforce. Daniel mentioned that TechCrunch had posted the 56-page Powerpoint presentation that was shared with all portfolio companies of the Silicon Valley venture capital firm Sequoia Capital, a major backer of Zapos.

If you haven't seen this presentation, check it out by clicking here now (note that you can watch the presentation in full screen as well, as the images are small).

As Sequoia Capital points out, the crux of the problem is that the housing crisis is spreading rapidly to other areas of the U.S. economy, as homeowners are facing foreclosure, and even those in good standing are no longer able to borrow against the inflated value of their homes. Additionally, consumer savings has been negligible or non-existent for several years. Consumers in this country are tapped out on their lines of credit, meaning their spending is grinding to a halt. As consumer spending declines, the economy is slowing, and people are losing their jobs and unemployment is rising. Sequoia sees three significant area of its investment portfolio facing increased challenges and market contraction: advertising, e-commerce, and mobile.

Sequoia's message to portfolio company CEOs:

1) Manage what you can control (spending, growth assumptions, earnings assumptions)
2) Focus on quality
3) Lower risk
4) Reduce debt

In order to survive the downturn, companies must:

1) Must-have product
2) Established revenue model
3) Understanding of market uptake
4) Consumers' ability to pay
5) Assessment vs. competitors
6) Cash is king
7) Need for profitability

The presentation finishes "Get Real or Go Home".

Also interesting from the venture capital world is an email from well known Google (Nasdaq: GOOG) angel investor Ron Conway to his +100 portfolio companies. Click here to see that email on TechCrunch as well.

I think the major takeaway is that Silicon Valley venture capital firms continue to fear for the worst, and prepare to weather the storm. Small businesses such as ours need to continue to trim fat from the business model and get ready for a prolonged downturn in the U.S. economy. Many small and nimble firms such as ours will weather the storm and emerge as stronger growth companies on the other side. However, our business six months or one year from today is likely to look very different.