Sequoia Rings the Alarm Bell: Silicon Valley Is in Trouble

Om Malik | Wednesday, October 8, 2008 | 4:53 PM PT | 197 comments

Updated: Sequoia Capital, arguably the smartest venture capital investor in business, is sounding the alarm and asking its portfolio companies to buckle down for what could be the worst economic downturn of their relatively short lives.

The fund organized a meeting yesterday where it invited entreprenuers/CEOs from its portfolio companies. The attendees were greeted by a cute image of a Grave Stone, with a message: R.I.P.: Good Times, my sources tell me.

I was able to confirm this with at least two sources. I am currently trying to nail down more details. Sequoia Capital declined to comment on the news. 

The gathering was addressed by at least four speakers, including a brief introduction by Mike Moritiz. Doug Leone was another speaker. I am still trying to nail down more details of the two other speakers. A person who handles Sequoia’s public market investments is said to have talked to the startups. The message delivered to those in attendance was that things could get a lot worse than people think, and it will be a more protracted downturn. To give a historical perspective, Sequoia had a similar meeting back before the last bubble unraveled burst. We know how that turned out.

They want the companies to cut costs, to figure out way to survive and emerge at the other end of this downturn, which could last years. The speakers went through each functional area of the business and told the companies how to cut costs. By holding this special meeting, Sequoia is telling its companies to put survival strategies in place and figure out ways to outlast the broader market troubles. 

Uber-investor Mike Moritiz told The Financial Times earlier this week: “It’s pretty clear that demand is going to soften across the board for every company - it doesn’t matter if you’re selling to consumers or companies.” Moritiz isn’t one to mince words, and is one of those few people who likes to get ahead of the fire and not fight it from behind. 

Sequoia isn’t the only one advising its startups to tighten their fiscal belts and prepare for a gut-wrenching ride. Ron Conway, a well-known angel investor in the Valley who has invested in companies like Google, offered very sobering advice to his companies via an email earlier today.

Raising capital will be much more difficult now. You should lower your “burn rate” to raise at least 3-6 months or more of funding via cost reductions, even if it means staff reductions and reduced marketing and G&A expenses. This is the equivalent to “raising an internal round” through cost reductions to buy you more time until you need to raise money again; hopefully when fund raising is more feasible.

Letting go of staff is hard and often gut-wrenching.  A re-evaluation of timelines and re-focus on milestones with an eye to doing more with less will allow you to live many more days, and the name of the game in this environment in some respects is survival — survival until conditions change. If you are in a funding cycle, you should raise your funding as soon as possible and raise as much as possible but face the fact that if you can’t raise money now you must cut costs.

Folks this is bad news for Silicon Valley, which has been living in a bubble, assuming that it is going to weather the global economic storm without being impacted. We have been following this story since last year, pointing out that the tech is not an island.

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October 8th, 2008
5:30 PM PT

[...] Leading Silicon Valley venture firm Sequoia held an emergency meeting yesterday to tell its portfolio companies to get ready for the worst, GigaOm is reporting. [...]

October 8th, 2008
6:39 PM PT

[...] It’s the same advice, actually, that he gave in 2000 during the tech meltdown that was then happening in real time. Lower your burn rates to get at least 3 more months out of your current money, and raise money right now if you can. It’s very similar to what Sequoia (and other VCs, I’m sure) are telling their startups. [...]

October 8th, 2008
7:01 PM PT

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October 8th, 2008
7:19 PM PT

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October 8th, 2008
7:30 PM PT

[...] It’s the same advice, actually, that he gave in 2000 during the tech meltdown that was then happening in real time. Lower your burn rates to get at least 3 more months out of your current money, and raise money right now if you can. It’s very similar to what Sequoia (and other VCs, I’m sure) are telling their startups. [...]

October 8th, 2008
7:51 PM PT

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October 8th, 2008
7:53 PM PT

[...] 実はこのアドバイス、同氏が2000年に、当時起こっていたテクノロジー危機の最中にリアルタイムで話したのと同じものだ。資金の回転率を下げ、少なくともあと3か月間は現有資金でやりくりし、可能であれば今すぐ資金を調達すること。これは、Sequoia(他のVCもそうだと思う)がスタートアップに話していることとよく似ている。 [...]

October 8th, 2008
7:59 PM PT
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[...] It’s the same advice, actually, that he gave in 2000 during the tech meltdown that was then happening in real time. Lower your burn rates to get at least 3 more months out of your current money, and raise money right now if you can. It’s very similar to what Sequoia (and other VCs, I’m sure) are telling their startups. [...]

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October 9th, 2008
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October 9th, 2008
1:16 PM PT

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October 9th, 2008
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October 9th, 2008
2:18 PM PT

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2:29 PM PT

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October 9th, 2008
3:07 PM PT

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October 9th, 2008
3:42 PM PT

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October 9th, 2008
3:54 PM PT

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October 9th, 2008
4:26 PM PT

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October 9th, 2008
4:43 PM PT

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October 9th, 2008
5:00 PM PT

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October 9th, 2008
6:34 PM PT

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October 9th, 2008
6:43 PM PT

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October 9th, 2008
7:08 PM PT

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October 9th, 2008
8:52 PM PT

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October 9th, 2008
9:01 PM PT

[...] Higginbotham, Thursday, October 9, 2008 at 9:01 PM PT Comments (0) Venture firms are sounding the alarm over what this current downturn might mean for their portfolio companies — and it’s not [...]

October 9th, 2008
10:01 PM PT

[...] Sequoia Capital and Ron Conway communicated with their portfolio companies to guide them through troubled times. [...]

October 9th, 2008
10:43 PM PT

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October 9th, 2008
11:30 PM PT

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October 9th, 2008
11:43 PM PT

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October 10th, 2008
12:01 AM PT

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October 10th, 2008
12:11 AM PT

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October 10th, 2008
1:45 AM PT

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October 10th, 2008
1:58 AM PT

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October 10th, 2008
2:07 AM PT

[...] 昨日(米国時間10/8)はSequoia CapitalとRon Conwayが投資先企業に、困難な時期を乗り切るための指針のメッセージを送った。今日はBenchmark Capitalがこの戦列に加わり、ある筋によればパートナー総代のBill Gurleyが投資先企業たちにメールを送った(今年の初めのGurleyと新パートナーMatt Cohlerのインタビュー記事を呼んでみてください)。 [...]

October 10th, 2008
3:56 AM PT

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October 10th, 2008
4:24 AM PT

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October 10th, 2008
6:15 AM PT

[...] Sequoia’s meeting of CEOs Tuesday to access and expound the meaning of survival.  Based on the Gigaom exclusive “Sequoia Rings the Alarm Bell…” we here at Flypaper.tv have gathered [...]

October 10th, 2008
7:26 AM PT

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October 10th, 2008
7:43 AM PT

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October 10th, 2008
9:20 AM PT

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October 10th, 2008
9:53 AM PT

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October 10th, 2008
10:05 AM PT

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October 10th, 2008
10:24 AM PT

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10:42 AM PT

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12:55 PM PT

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October 10th, 2008
1:06 PM PT

[...] for venture-backed start-ups that Sequoia Capital gave to its portfolio companies this week. GigaOm’s Om Malik had a nice take on the story yesterday; VentureBeat has posted the PowerPoint slides from the Sequoia presentation, and I’ve [...]

October 11th, 2008
10:59 AM PT

[...] what can start-ups do right now? Well Ron Conway, Benchmark Capital, and Sequoia have pretty clear ideas, as do any number of bloggers and pundits. But honestly the two most [...]

October 11th, 2008
11:42 AM PT

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October 11th, 2008
2:46 PM PT

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October 11th, 2008
9:40 PM PT

[...] the web crowd to froth itself into a tizzy talking about the coming Silicon Valley slowdown. Led by Sequoia Capital, the clarion call is for cutting costs, firing employees, reducing burn rate, and trying to extend [...]

October 12th, 2008
12:00 PM PT

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October 12th, 2008
1:51 PM PT

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October 12th, 2008
7:35 PM PT

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October 12th, 2008
9:01 PM PT

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October 12th, 2008
9:53 PM PT

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11:18 PM PT

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October 12th, 2008
11:51 PM PT
October 13th, 2008
12:05 AM PT

[...] : Good Times Jump to Comments The good times are over, the partners of Sequoia Capital are telling the entrepreneurs they fund. The VCs are telling their [...]

October 13th, 2008
5:24 AM PT

[...] swoje miliony od funduszy inwestycyjnych. Przestało być bajecznie więc zaczęto lamentować. Sequoia Capital bije na alarm i tnie koszta, a Seesmic zwolnił już 7 [...]

October 13th, 2008
9:18 AM PT

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October 13th, 2008
9:54 AM PT

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October 13th, 2008
10:15 AM PT

[...] Malik reported yesterday on his blog that Sequoia brought it’s portfolio together this week and gave them a talk about cutting costs and…. Ron Conway sent an email to his portfolio suggesting to them that they cut expenses so that they [...]

October 13th, 2008
10:23 AM PT

[...] Malik, one of the few uber-A-listers I haven’t met or hung out with yet, has a fantastic post about the economy, VC Funding and start ups. With the economy heading so completely south, start [...]

October 13th, 2008
10:44 AM PT

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October 13th, 2008
10:48 AM PT

[...] Om Malik had written last week that Sequoia held a meeting of all the entrepreneuers/CEOs of its portfolio companies and advised them to tighten their fiscal belts. Attendees were greeted with an image of a Grave Stone, with the following message: “R.I.P.: Good Times“.  [...]

October 13th, 2008
11:10 AM PT

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12:26 PM PT

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October 13th, 2008
1:23 PM PT

[...] Om Malik had written last week that Sequoia held a meeting of all the entrepreneuers/CEOs of its portfolio companies and advised them to tighten their fiscal belts. Attendees were greeted with an image of a Grave Stone, with the following message: “R.I.P.: Good Times“. [...]

October 13th, 2008
9:42 PM PT

[...] companies. The tagline?  “R.I.P.: Good Times”.   You can check out this write-up on  the GigaOM blog.  Here’s an excerpt: They want the companies to cut costs, to figure out way to survive and [...]

October 14th, 2008
5:13 AM PT

[...] Sequoia Rings the Alarm Bell: Silicon Valley Is in Trouble GIGAOM Sequoia Capital, arguably the smartest venture capital investor in business, is sounding the alarm and asking its portfolio companies to buckle down for what could be the worst economic downturn of their relatively short lives.The fund organized a meeting yesterday where it invited entreprenuers/CEOs from its portfolio companies. The attendees were greeted by a cute image of a Grave Stone, with a message: R.I.P.: Good Times, my sources tell me.I was able to confirm this with at least two sources. I am currently trying to nail down more details. Sequoia Capital declined to comment on the news. Source> [...]

October 14th, 2008
10:15 AM PT

[...] already raised by lowering their “burn rate.” Angel investor Ron Conway, for example, sent his portfolio companies an email advising them to “lower [their] ‘burn rate’ to raise at least 3-6 months or more [...]

October 14th, 2008
11:05 AM PT

[...] portfolio companies. The tagline?  “R.I.P.: Good Times”.   You can check out this write-up on  the GigaOM blog.  Here’s an excerpt: They want the companies to cut costs, to figure out way to survive and [...]

October 14th, 2008
11:52 AM PT

[...] i­n­ves­tor Ron­ Con­wa­y­, for ex­a­m­ple, sent hi­s po­r­tfo­li­o­ co­m­pani­es an em­ai&#17… a­dv­isin­g th­em­ to “lower [th­eir] ‘bu­rn­ [...]

October 14th, 2008
7:24 PM PT

[...] already raised by lowering their “burn rate.” Angel investor Ron Conway, for example, sent his portfolio companies an email advising them to “lower [their] ‘burn rate’ to raise at least 3-6 months or more [...]

October 14th, 2008
7:56 PM PT

[...] they’ve already raised by lowering their “burn rate.” Angel investor Ron Conway, for example, sent his portfolio companies an email advising them to “lower [their] ‘burn rate’ to raise at least 3-6 months or more of funding [...]

October 17th, 2008
10:34 AM PT

[...] Click here to read more about this presentation. Share and Enjoy: [...]

October 18th, 2008
8:58 AM PT

[...] with, since we’re completely self-funded, we’re not worrying about reassuring anxious VCs or angel investors.  We don’t have any non-founder employees (and we’re not paying [...]

October 19th, 2008
5:52 AM PT

[...] Consejos de Sequoia VC para sus startups participadas por Om [...]

October 19th, 2008
6:44 PM PT

[...] venture capital My favorite ad network is hitting some rough times thanks to the economy as Sequoia Capital asking its companies to buckle down and prepare for the [...]

October 20th, 2008
8:05 AM PT

[...] now, you’ve probably heard about the grim tidings from VC meetings this month. If you haven’t, well, let’s just say your investors would like a [...]

October 20th, 2008
10:53 AM PT

[...] Sequoia capital refused to officially comment the meet it was reported in tech world across blogs (Gigaom broke the news) and news sites. It has been reported that invitees were greeted to the meeting with [...]

October 20th, 2008
3:02 PM PT

[...] czasami ulegam takim stanom) ale faktów się nie oszuka. Wielcy z VC właśnie biją w tarabany i radzą (za darmo!), że kryzys już zbiera żniwo, że trzeba zaciskać pasa i zacząć w końcu zarabiać [...]

October 22nd, 2008
12:15 PM PT

[...] Материал сайта GigaOm от 10 октября 2008. [...]

October 23rd, 2008
4:50 AM PT

[...] du web faite par les investisseurs américains, avec en chef de file Sequoia (voir l’article disponible sur GigaOm), la question de changer le nom de la conférence a été posée à Tim O’Reilly. La réponse [...]

October 23rd, 2008
9:01 PM PT

[...] buying, and corporations are putting spending on hold. As such, venture firms have been sowing panic among their portfolio companies, telling them to cut early and cut often. The resulting layoffs are already filtering through the [...]

October 26th, 2008
9:00 AM PT

[...] our meeting had been planned several months ago, the fact that it came on the heels of some highly publicized admonishments by certain VCs to the CEOs of their portfolio companies to slash costs in order to survive the financial crisis [...]

November 4th, 2008
3:52 AM PT

[...] Sobrevivir a la crisis (II): Aguantar tres años sin financiación En estos momentos ninguna start-up puede sobrevivir si depende de financiación externa (ya sean bancos o inversores). Y va a seguir [...]

November 5th, 2008
7:13 AM PT

[...] obit was also carried on Om Malik’s blog GigaOm and in the LA Times. This was in an article in the Financial Times [...]

November 6th, 2008
3:24 PM PT
November 15th, 2008
6:35 PM PT

[...] The global economic downturn has started to take its toll on Silicon Valley, especially since the news of an emergency meeting Sequoia Capital held for its entrepreneurs, asking them to buckle up for the nausea inducing ride that lay ahead of them. In the weeks that [...]

November 16th, 2008
9:00 AM PT

[...] many entrepreneurs who saw the now-famous “Sequoia deck” unfortunately took its conclusions to be a tenet of truth and acted on it — perhaps too [...]

November 16th, 2008
4:06 PM PT

[...] global economic downturn has started to take its toll on Silicon Valley, especially since the news of an emergency meeting Sequoia Capital held for its entrepreneurs, asking them to buckle up for the nausea-inducing ride that lay ahead of them. In the weeks that [...]

November 18th, 2008
1:23 PM PT

[...] Om October 8, 2008 | jason | 1tinyComb, yahoo  [...]

December 2nd, 2008
10:55 PM PT

[...] Malik | Tuesday, December 2, 2008 | 10:24 PM PT | 0 comments A few months ago Sequoia Capital doused the ever ebullient Silicon Valley with a bucket of ice cold reality when it laid “good [...]

57 comments so far

October 8th, 2008
5:33 PM PT

I’m not going to lie, that is daunting & scary to hear it from Sequoia who clearly know what they’re talking about. I think however, there was always going to come a time when this playground we called Web 2.0 came to an end and businesses with serious business models shone through. The ones without them - knuckle down and make some money…or clearly die.

October 8th, 2008
5:39 PM PT
Patricia said:

I’m not surprised, but I think that startups should run very learn and be doing all of this anyway regardless of market forecast/conditions - especially if they’re funded.

October 8th, 2008
5:39 PM PT
Patricia said:

oops - i mean “run very LEAN”

October 8th, 2008
5:39 PM PT
David said:

Om, insightful post. People have been wondering about how VC’s will react, and I think you’re right that this is a good indicator.

October 8th, 2008
5:43 PM PT

In a forest fire lots of trees burn, but not all trees. Scary times indeed.

October 8th, 2008
5:45 PM PT

I sat in meetings with several prominent VC’s and angels, showed a 1000+ user survey with 99.9% favorable responses in favor of paying subscription fees for a mobile service vertical market venture. One qu