Sequoia Capital warns of a ‘Crucible Moment’ for startups

Startup investors are warning their companies to hunker down or risk becoming the unflattering subject of the next Hulu documentary.

Sequoia Capital, one of most prominent Silicon Valley venture capital firms, recently showed its portfolio companies a presentation called “Adapting to Endure,” in which it implored startups to hunker down with the business equivalent of a power bank and dried beans.

Given swirling inflation, a Fed that’s deliberately slowing down the economy, and geopolitical risks all over the globe, Sequoia believes “this a Crucible Moment.” It recommended that its companies take a hard look at how they’re spending their money and, if necessary, cut back on R&D, marketing, and projects that aren’t essential.

Sequoia has a history of making doomsday calls. In 2020, it called the Covid-19 pandemic a “Black Swan” event and in 2008 wrote a post titled, “RIP Good Times.”

These days, it’s not the only one sounding the alarm for startups. Silicon Valley startup incubator Y Combinator sent an email to its founders with a Game of Thrones season one vibe. “Regardless of your ability to fundraise, it's your responsibility to ensure your company will survive if you cannot raise money for the next 24 months,” the firm wrote.

Big picture: These warnings represent a remarkable U-turn from the unbridled optimism that defined the VC space during the past decade. Just a few years ago, a charismatic founder could fetch a $47 billion valuation with a plan to “elevate the world’s consciousness” by leasing office space.

Now, companies big and small are just trying to keep conscious.

• Bolt, an online payments startup that recently raised a war chest of $355 million, announced layoffs on Wednesday. It’s one of at least 16 tech companies that let more than 7,200 employees go this week.
• Microsoft, Meta, Uber, and Nvidia are all slowing hiring, and Netflix and Robinhood recently laid off staff.
• SoftBank’s mammoth Vision Fund posted its worst annual loss as a result of the tech downturn.

Looking ahead…Sequoia sees signs of a prolonged recession. It’s said, “We do not believe that this is going to be another steep correction followed by an equally swift V-shaped recovery like we saw at the outset of the pandemic.”—NF

Further reading. The tech rout isn’t just cyclical—it’s well-earned, and overdue. (Bloomberg)