Putting Additional Context Around Sequoia’s Message


How many venture-backed CEO's have reported that they have received multiple copies of the Sequoia PowerPoint, first from all of their VC directors, then their VC friends, and finally from random people who know they are working in a venture-backed company? Well, the 'don't-tell-anyone-it's-confidential-but here you-go' guerilla dissemination tactics have worked very well for the PR people at Sequoia.  But is the 'be afraid' message that most people are highlighting the right message to focus on, or is it that we need to stay ahead of the massive shifts in the macro economy and watch our costs? 

Alan Patricof of Greycroft Partners recently wrote a letter to investors, in part commenting on the need to avoid overreacting to the Sequoia call to alarm.  In my view his comments reflect a balanced recognition of both the risks and the opportunities facing VC and entrepreneurs in the new investing reality.  I excerpt a portion of his letter below:

This is surely a time for companies to pay meticulous attention to detail, particularly their cost structure. It is a time to be realistic in their near term assumptions for revenue growth and take nothing for granted.  Raising additional capital to support operations is of course critical, as it is at any time, but this is particularly a time for young companies to be extra cautious in developing pragmatic assumptions of their needs and in focusing on the amount and not necessarily the cost of that capital.  

This is not a time to panic, cut off all investment in the future, and burrow into a dark hole. …  It is our strong belief that we can and will continue to make sound investments in excellent opportunities. It is as good a time as ever to start a company with sound fundamentals.  
So my point is to heed the caution of the Sequoia comments but to use them only as a strong message to reexamine all cost elements and growth plans and use this opportunity to assure that you are a survivor.  Find a way to use this moment to gain your greater share of the market by providing a solution that is needed by others to improve their prospects in the difficult environment ahead.  Tighten your belt and live within your means.  Although the timing makes this message seem more prescient, it is a philosophy that works for successful companies at all times and at all stages; it is simply put, good business.  This is not a time for heroes!

Alan Patricof 

In a recent letter to our investors, my partners and I communicated a similar message, a portion of that letter is excerpted below:

While the general outlook is bleak in the capital markets today, we must remember that capital markets are dynamic—they change constantly.  The process of value destruction that we are experiencing now will give way to a  new cycle of value and wealth creation.  New capital formation and the support of entrepreneurs is the lifeblood of the global economic system.  Venture capital is the purest model of unleveraged growth investing that exists.  We believe that the United States will join other countries in making the support of entrepreneurs a national priority and recognize that institutional venture capital is the most effective way to help America grow out of the mess that we are in.  Our job is to continue to show leadership in the venture capital industry by making profitable long term investments for our partners. 

Pascal Levensohn, Kip Sheeline, Jeff Karras, and Steve Reale 

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