Following last week's various posts and emails about how the economy will impact startups, via TechCrunch comes a copy of the presentation that Sequoia Capital gave to the CEOs of its 130 active portfolio companies.
The outlook is pretty gloomy. A few key takeaways:
- A v-shaped recovery is unlikely
- Advertising markets are cracking
- Retail/ecommerce deteriorating
- Mobile is not immune
- Tech spending is highly dependent upon the economy
The new realities for raising capital
- $15M raise on a $100M post is gone
- Series B/C will be smaller raises
- Customer uptake will be slower
- Cuts are a must
- Need to become cash flow positive
So, what actions are they recommending their portfolio companies take?
- Adapt quickly
- Use a zero-based budgeting approach
- Make cuts
- Review salaries and employ a heavily commissioned sales structure
- Bolster balance sheets
Regardless of the specific actions, they recommend taking action quickly to avoid putting your company into a death spiral:
Their closing message:
Get Real or Go Home
Meanwhile, Benchmark Capital's Bill Gurley sent his own warning email to portfolio companies. The full email is published here, but here are the key points (highlighting is mine):
1. You don’t realize how fast things spin out of control. There are
self‐
reinforcing negative affects in a downturn.
2. Don’t spend money
until you have to
a.
Don’t move out of your office until you are sitting on top of one
another
b.
Don’t hire any incremental employee until you just can’t stand it
c.
Don’t get more capacity in your data center until your site is going down
3. Better to be “late to the party” than to be early and run out of
money
4. Line item review of the budget every month (legal, accounting,
everything)
5. Not just a CEO mindset, but a company mindset
a. Everyone
must buy into the process
b. But in a calm way - not run for the hills
6.
Create 2 or 3 different burn scenarios - know at any point in time how many
months of cash is left.
