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We were able to track down the presentation that Sequoia Capital gave to its portfolio company CEO’s earlier this week (and so did VentureBeat). It’s a long, 56 slide Powerpoint message of doom and gloom in Silicon Valley that we covered yesterday along with an email that angel investor Ron Conway sent to his 130 active portfolio companies.
The final text slide reads “Get Real or Go Home.”
Benchmark Capital jumped on the band wagon today with their own email to portfolio companies. The messages are all similar - companies need to stay ahead of the curve as much as possible. Cut costs now, and raise capital if you can. If there’s someone out there willing to buy you, do it. Etc.
Of course all this negativity helps create the very downturn that venture capitalists are warning their companies to defend themselves against, perpetuating a sort of vicious cycle downward. But that’s ok, sometimes the hedge needs to be pruned. And this is what makes Silicon Valley its ugly, beautiful self.
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52 pages of propaganda.
Thanks Ryan.
Things missing as to the Cause:
Organized Crime, Conspiracy, Racketeering, Greed.
Says alot about the character of Seqouia. They have none. Not professional whatsoever.
“Venture Vultures” picking at there own carcus. Sick.
RealityLocator.com
Someone ban him already, jesus.
Is this really what the loons at Sequoia do to earn their management fees?
Where are the saps that invest in their funds? I want to sell them a bridge.
They win first runner up in the blow hard contest.
agreed… please someone ban this dumbass locator guy.
And one moronic comment.
Just proves that sometimes idiots have money too.
Why does it require a global financial crisis to signal to companies (venture funded or otherwise) that fiscal prudence is now a good thing. Surely the VC’s had to realize that the free ride to easy capital driven by boomer demographics and global productivity (deflationary forces) was going to end sometime.
My favorite comment is the last bullet on slide 53 where they caution companies to “Spend every dollar as if it were your last….”
What have the VC’s being suggesting up until now?
Is there a descriptive text of these slides anywhere?
In a classic example of poor information design, slide #6 appears to indicate that there was a big difference in length between the last bull and bear markets, whereas the 1966-1982 period vs. 1982-2000 are different by only one year.
It’s a small thing, but it’s annoying and sloppy.
Pretty obvious by now that Ryan Robinson is an fool.
I am in NYC for my VC meeting, I know what to expect later today. Great ppt. Thanks for sharing with us Mike.
No, the was no propaganda at all.
I’m surprised at the level of detail and the robustness of their analysis on the causes of the current crisis.
Whilst their advice is the same as that of all the other VCs, these guys have distinguished themselves by explaining very precisely how and when the wheels came off.
I really didn’t think VCs types either knew or cared about the big picture, or how to analyze it properly, but these guys obviously do.
Why did you take out the sldieshare embed… much easier to browse … docs embeds are not readable
Wow I am suprised at the level of detail they went into, and they are right get real or go home… That will make a good qoute for my signature in emails…
bullshit.
vcs don´t really care about their portfolio startups now. they a) want better entry prices (lower valuations) for their next deals and b) some of themselves need money now. not their portfolio ventures.
nothing else than a smart trick.
super PPT. Impressed (but not surprised) at the level of detail. I am so happy people are back to revenues and solid business models.
Point of thought : This PPT should have come in March - May and not now. If you haven’t figured this to-do list by now, you are likely to “go home”.
Side #46 boggles the mind. This is “survival”, and not common sense and requirements of any healthy company? Wow.
It’s funny how VC’s always come up with this kind of advice that every normal business owner already lives by from the beginning of his venture. The so-called dot com industry has its own cycle of stupidity.
1.) one company has a good idea
2.) 5,000 others jump on it
3.) VC’s dump money on them
4.) party, free lunch, 200 web designers for stuff normal companies do with one person, web 2.0 conferences, glossy magazines, 24 year old billionaires
5.) bad news trickling in, somewhere somehow a cycle turns downward
6.) VC’s send out gloomy emails and demand cash-flow and profitability
7.) Regular business man scratches head and thinks “so this is news?”
8.) Start anew at 1.)
I agree with that. This isn’t news if the business owner is any good at his job.
Except you are wrong.
Companies have the option of trying to quickly ramp up product research and spend lots of money up front to gain market share quickly OR they can boot strap and hire a smaller research team and slowly expend for market share growth (through advertising/partnering deals etc.)
There is obviously a balance between fast expensive push to market and a slow burning march to revenue. The whole point of the presentation was to convince their CEOs of each company to strap down and reduce expansionist plans because no matter how good their business is… the times are too tough.
Sometimes you have to go all out… spending lots of money really fast can be more profitable than spending just a little money… but that time is not now.
You just summed it up for me.
Exactly. Great post. These bozos are mental midgets.
Absolutely spot on! What is truly ironic is that business people who take the steps to make sure their venture is based on actual revenue are often the entrepreneurs VC’s condescendingly refer to as the “lifestyle entrepreneur.”
Hola Davey,
it is Suckquoi’s hedge fund of fund and endowment outsourcing guy who created the book, so of course it is detailed. It is good for them to start outsourcing endowments in this environment.
I’m a little shocked at the positive response to the quality of the presentation. Frankly, it doesn’t really say anything. It’s basic common sense info and suggestions that informed business executives should already be aware of. In addition, the look and feel of the presentation is poor.
Supposedly one of Doug Leone’s slides was: “If the product is ready, cut the number of engineers.”
That makes sense if Sequoia companies have only one product and it’s “done” at some point. (Google is still working on search.) Companies that work that way shouldn’t employ engineers - they should contract out.
However, regardless of whether it’s true at a specific company, that statement is going to make it harder to get and keep good engineers. There will be more push-back against one year cliffs and four year vesting. We’re going to see more engineers leaving a product that is 3/4 done to a company/product that is 1/4 done.
I wonder why did they fund all those startup that were not “real” in the first place? VCs should get real, or go home!
Let me get this right.
Our total debt as a % of GDP is 300 PERCENT!?!?!?!
It all depends what you include in National Debt. Bush administration doesn’t want to include War on Terror in calculation.
Here is a more moderate.
http://www.cedarcomm.com/~stevelm1/usdebt.htm
A general rule of thumb: every war is followed by a jump in debt…that never seems to decrease.
http://felfoldi.wordpress.com/.....-of-taxes/
I think it’s important to remember that a VC’s first job is to create returns for their LPs. If we keep that in mind, then the capital preservation/survival language says to me: 1. “we’re concerned about raising additional funds to provide follow on investments and don’t want to see our existing portfolio tank, since we won’t be able to support it much longer at exaggerated burn rates” and/or 2. We want to get better “value” out of our portfolio, so we’re going to wait to do follow on funding until we can do it a significantly lower valuation to increase our return.”
So, from the VC’s perspective (and it’s the right perspective to have to provide better returns could be: give us better value.
Yes, very good ppt indeed, summarizes the whole situations.Thanks Mike for finding it and sharing it with us.
hmm… a lot of hostility in the comment thread over a silly pdf… all they are doing is trying to make sure that the companies that are spending their money go ahead and start spending less of it… (aka, please lay some people off)
fire the cute chick who you have hanging around just to look at her beautiful ass all day, fire your brother who has no discernible work skills whatsoever and who’s most important role around the office is to go get coffee, fire the “communications” major who’s only real goal seems to be to condescend you and your executive staff all week long and text messaging during board meetings… in other words, trim the fat, spare the change, and turn off the satellite t.v. If you don’t NEED it to realize the bottom line objective, then get rid of it… and i know, i will miss that ass, too, but she’s gotta go.
They are arrogant, ignorant, jackasses. But that’s okay. It’s America.
Hmmm
I find this pitch really “US startups-oriented”.
I don’t really expect things to go as bad as described for EU-based startups.
First of all, overheads & top management salaries seem lower there (see http://www.techcrunch.com/2008.....w-ceo-pay/ for instance… 150k for a STARTUP CEO is just nonsense considering 90% of them are a) founders too b) “expensive lifestyle”-free )
I say it’s just a “scaled” warning.
If you’re a reasonable s-u owner (i.e, you got a business model, revenues - or decent forecasts - and you don’t spend huge amount of money uselessly), then take it lightly.
Slide 12 is quite interesting, if not a little scary.
So is the entire presentation, for that matter.
What took the VCs so long to advise this?
Slide 43 - “In you are a startup that is not cash-flow positive you are in a tough spot right now. If you haven’t figured out your business model yet you are in trouble.”
We decided back in May that we had to reach cash flow positive and we did in Sept.
I see this post repeatedly and would like to comment. Take my disclaimer early: “I might be wrong, but I am going to stick to it, until proven wrong”.
What took VC so long to say this? Well, they always say and monitor it while on the board. There is a difference, however during cruch-time. Take it as a manager and direct reports. Manager doesn’t micro-manage them, doesn’t ask them “work hard and don’t sleep” every single day. However, he does make sure things are over-all in track and people are reasonably well-balanced in good times.
Now in a situation, where product release is crucial, the manager gets high-handed a little. It’s his job to tell everyone, deliver or leave. That comes when times are really crucial.
VC firms are doing the same. They are micro-managing their startup’s saying, now is the time to cut expense and do it soon. That’s the cycle.
I second alexei’s comment. Why the sudden change in embed after the initial post? IMO the slideshare embed suits the purpose much better.
Excellent. The first presentation seems like a sound analysis. We can see from this that at least the best VC firm has a clear view of what’s going on. The presentation of Doug Leone is way better than it looks. (But that in itself is a message: don’t waste energy on superficial formatting.) There are three key slides: New Realities, Increased Challenges, and The Solution. What it’s saying seems completely correct: We have to modify expectations on all sides. Companies looking for funding are going to have to give away more; LP’s are going to see smaller returns, slower growth, limited M&A and IPO activity; and all of this will go on for for a while. Does anyone here disagree? The Solution may seem obvious, but remember that Sequoia has made a Midas’ fortune N times over investing in companies started and often operated by kids. Take this as a message of adult supervision - times are tough and our old friend - fiscal discipline - has come back for a visit. Probably a long visit. Totally correct.
@Paul. There is ONE key slide. Oct 2008 - cut TODAY.
Do you agree with Leone’s advice? command?
-Dash
http://adecon101.blogspot.com/
Note that seesmic took the advice, even though they were funded by others.
-Dash
http://adecon101.blogspot.com/
Yes, I agree with Leone’s advice. The point of many of those slides is not just the individual bullet items, but the fact that in these conditions they’re checked down the line. I might say it slightly differently: under stress any cracks in the performance, timing, revenue model, management team, etc. are going to expand into craters.
This is not a surprise. I have been saying this since the financial crisis started March, 2007. Also, I have seen many duplicated and “me too” startups and kept getting funded. It was puzzling. Let the Burn begin. Deadpool door is open.
Love the powerpoint deck, it’s been going around and making waves… even on nytimes. It’s time to man up.
Don’t like the format though, the scroll is awkward. Liked how they at it at nytimes.com better.
Screw the content (which is great), this is the sweetest Power Point Deck ever! David Byrne would be proud.
Translation -
We have made some bad investments in the past few years and guess who the CEO’s of those companies are?
The VCs gloom will be the new Internet entrepreneurs’ and angels’ boon
http://blog.dogster.com/2008/1.....repeneurs/
does anyone know what program they use to create those charts? i like the look
So wait…..the eyeball based model doesn’t work 8 years later? Who could have seen that……
Is McAdoo their due diligence guy? Jesus Christ, he’s an idiot.
McAdoo, get a hairpiece, you sweater-wearing hasbeen.
I quickly look at your charts , I don’t see you mention expense on war which is major cause of this mess, too.
agree, great stuff - all common sense. Agree with Joe w/r war spending.
Sequoia can suck my dick.
What surprises me is that the increase in home ownership and the increase in subprime mortgages are not correlated. Most of the jump in home ownership –f rom 64% to 69%, (Slide #24) Occurred between 1995 and 2002, whereas the big increase in subprime mortgages occurred between 2002 and 2006 (Slide #13)
BTW: The scale on the Y axis for this slide, #24 is misleading the way it’s drawn.
So what happened if the wave of sub-prime mortgages was not fueling an increase in the number of homeowners?
Did people trade-up to new houses they ultimately could not afford?
Did people make investments in 2nd homes?
Did people simply refinance, and take out the cash for remodels, vacations, cars and toys?
I think Sequoia’s right on here, although since they are the reigning ‘Masters of the Universe’ after Google, I do worry that some of what they say can become self-fulfilling and feed back negatively on the entire VC industry. These slides have now made the rounds to all of the fund of funds, endowments and most VC’s around the globe by now. I’ve received five emails linking the slides here in Utah from all over the world. The bit about raising financing for VC funds is a bit self-serving for Sequoia. Sure, there’s enough VC money out there and it does make for quite a bit of competition for the good deals. And OF COURSE it would help Sequoia if LP’s put less money in the sector. But is that really good for all of the working class people who depend on VC financing for their livelihoods? Maybe the pension funds and university endowments should be putting more money into the hands of hedge funds so they can short the market and destroy more good companies?! It kind of makes you sick when you think about it. . . . I’m afraid that many of the LPs will follow the advice of Sequoia (sheepishly framed as quotes from an article in Fortune magazine on slide 56), and stop investing in venture capital. Masters of the Universe should be more careful. Then again, maybe that’s why they are the Masters of the Universe.
Since the DotCom boom, the sheer volume of money being pumped into Venture Capital has been far more that what the few seasoned “Entrepreneur turned VC” fund managers can handle directly. As a result VC management has been take over by MBA grad fund managers who’ve never actually run a company in their young lives. Given this absence of entrepreneurial wisdom in the VC fund manager ranks, the only value VC money has is to provide large amounts of capital to operate a startup company at a loss longer than any publicly traded company could with available R&D capital until startup company value can be extracted in the form of an exit. So, you’d think VCs would be enjoying new opportunities to finance good ideas that debt strapped corporations can no longer finance with their reduced R&D capital. Instead they’re spreading doom and gloom to their portfolio companies.
With that said, the one graph missing in Sequia’s slidea is the average annual returns VC funds have enjoyed (or not) over the last several years. Somehow, that one got left out! Many of these funds have been running negative annual returns well before this financial crisis. Many were running negative double digit annual returns in the year leading up to 9/11/2001. They rebounded slightly subsequent to 9/11/01 and it appears that many have been experiencing significant losses again over the last couple years now.
I wonder how much if this doom and gloom being pawned off on the current economic scenario is in fact fear and loathing of fund managers who do not have sufficient entrepreneurial wisdom and fortitude to stick to their investment objectives in emerging technologies and emerging markets.
sheep
Very nice presentation by Sequoia though quite melodramatic. But hey, you enjoy the show, don’t you?
What I like about this the most is there is no media, political or any other spin on this. Just one venture capital company telling it how it is. That is why this information is so poignant. Thanks
I would also have to say that I disagree with one major point in the slide presentation. I don’t believe that companies should batten down the hatches. This is exactly what our country doesn’t need. What we need is to repurpose assets, budgets and resources in areas that will provide the most value to a company. I would rather invest a dollar wisely then hang on to it hoping it is enough to weather the storm.
This is the presentation of the hysteric people, the analysts that analyze the past but cannot forecast the future. Unfortunately this atitude to financial crisis returns again and again, in every crisis, and is the fuel to continue the crisis.
And one more thing to remember: every crisis is also an opportunity. The challenge is to find the opportunity and use it.
I really appreciated this ppt and thanks to Guy Kawasaki for bringing it to my attention. Now is a very good time for all of us to be reminded of the basic fundamentals for developing a healthy business. My only criticism is the typo in the headline on slide 28 (but people who know me would expect me to say that!).
The TRUTH begins when CAPITALISM is dead!
Sarah Palin is the answer.
Sequoia is advising its portfolio companies to do what every small business must do everyday. Its backed companies should take note. This is a brilliant time for companies that have the will to succeed. It’s the time to cut fat but not to cut marketing. Those left standing will be the ones that roar.
There is good data in the slides and charts. The real message is that this isn’t your typical cycle.
Notice the MEW (mortgage equity withdrawal) numbers. Yikes.
I noticed that most- not all- of these charts have a ‘zero-origin’ or at least a clearly demarcated zero line.
A notable exception: slide #17. The emotional content (the shape of the line) totally overwhelms the basis content (the actual numbers). All through the manipulation of the (non-visible) zero line. Through this method you’ve all been pwned!
Reject such pictorial disinformation! Just don’t look at it.
i think there is some information in this report but i think its orientated at bigger entities and kinda basic trends and fixes that i suspect in the long run wont work. i think we are so growth addicted that we forget that constant production can yield constant profit and its not necessarily a bad thing. unfortunately the growth itself is a bubble and not really a true leap or gain. job loss is sad but the lives of most working people is slavery anyways so this whole business is kinda the shouts from the demigogues to scare the small folks to conform into herds and do as they say…which is the wrong decision
Quite funny to read here Get Real or Go Home.
Get Real is the 37 Signals Manifesto and 37 Signals is the very company that is pinpointed on Techcrunch (http://www.techcrunch.com/2007/08/13/37signals-drives-another-company-to-the-deadpool/) to have a non-viable business model.
Loving it.
JERRY playing tunes…
jack listening from the back… with SEVEN PLANET WATER …. other 1.0 business modles… TOAST is in!
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