Sequoia warns portfolio companies of coronavirus effects, compares it to 2008's economic crisis
Silicon Valley's most sought-after VC firm Sequoia Capital sounded off an alarm this morning to its portfolio companies about the consequences of the coronavirus outbreak.
In a memo to founders and CEOs, the VC dubbed coronavirus as “the black swan of 2020", and observed that it could have far-reaching implications — as dire as that during the global economic crisis of 2008-09.
Sequoia urged companies to "question every assumption" about their businesses, including cash runaway, fundraising, sales forecasts, marketing, headcount, capital spending, and more.
“With lives at risk, we hope that conditions improve as quickly as possible. In the interim, we should brace ourselves for turbulence and have a prepared mindset for the scenarios that may play out," the memo, later published on its Medium blog, stated.
Calling for able, measured leadership in times like these, Sequoia told its founders,
"A distinctive feature of enduring companies is the way their leaders react to moments like these. False optimism can easily lead you astray and prevent you from making contingency plans or taking bold action. Avoid this trap by being clinically realistic and acting decisively as circumstances change. Demonstrate the leadership your team needs during this stressful time."
In what appears like a throwback to the economic crisis of 2008, Sequoia Partner Alfred Lin, who was then serving as the COO/CFO of Zappos, said, “We didn’t know then, just like we don’t know now, how long or how sharp or shallow of a downturn we will face."
The coronavirus is said to have infected over 93,000 people and claimed 3,100 lives already. With no foreseeable cure yet, the outbreak, which started in Wuhan, China, is reaching near-pandemic proportions, and is being closely watched by the WHO.
Besides the human toll, the economic toll of the virus is also expected to be severe.
With multiple event cancellations, including the Mobile World Congress and annual developer conferences by Google, Facebook, Adobe, and others, the tech industry is already reeling from losses of nearly $700 million and counting. Worst hit sectors include airlines, hotels, restaurants, and transportation providers.
Sequoia also warned its portfolio companies of potential drops in revenue and cash levels in the near future, saying that those "always fall faster than expenses".
"Having weathered every business downturn for nearly fifty years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances... 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," it noted.
(Edited by Evelyn Ratnakumar)