One of the world’s largest venture capital firms has put its portfolio companies on notice, warning that coronavirus will be a case of survival of the fittest.
Sequoia – responsible for the meteoric rise of companies like Apple, Google, and PayPal – issued a note warning to portfolio CEOs on the coronavirus outbreak, calling it “the Black Swan of 2020”.
“It will take considerable time – perhaps several quarters – before we can be confident that the virus has been contained,” Sequoia wrote.
“It will take even longer for the global economy to recover its footing. Some of you may experience softening demand; some of you may face supply challenges…we suggest you question every assumption about your business.”
The note echoes the firm’s infamous 56 slide “RIP Good Times” PowerPoint presentation that it sent to portfolio CEOs at the height of the global financial crisis, which concluded with an ominous command to “get real or go home”.
“My attitude is to batten down the hatches…it is going to be a rough ride,” managing partner Douglas Leone wrote in an email at the time. “Any co without at least a yr of cash minimum in the bank is in trouble…in my opinion.”
Several of Sequoia’s portfolio companies have seen growth rates drop “sharply” between December and February, while some that were on track are now at risk of missing their Q1 2020 plans as the effects of the virus widen. Sequoia urged companies to trim expenses, make contingency plans, and work on their “headcount”, saying now is the time to evaluate whether they can do “more with less”.
“Having weathered every business downturn for nearly 50 years, we’ve learned an important lesson – nobody ever regrets making fast and decisive adjustments to changing circumstances,” Sequoia wrote in the note.
“In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology. As Darwin surmised, those who survive “are not the strongest or the most intelligent, but the most adaptable to change.””
The combined market value for companies that Sequoia has invested in is over $1.4 trillion – more than 20 per cent of the NASDAQ.