Sequoia Capital warns founders of "longer" economic downturn, market is in a "crucible moment"

The warning from Sequoia, one of the biggest VCs in the world, comes on the heels of similar notes from companies such as Y Combinator and Lightspeed Venture Partners.
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Venture Capital firm Sequoia Capital has sent out a 52-slide presentation to 250 founders warning them that the current market situation presents a "crucible moment" for the world. They believe the geopolitical crisis in Europe, turbulent financial markets, and rising inflation are going to create a prolonged economic downturn.

In the presentation, reviewed by The Information, Sequoia has warned founders that the coming recession will not see a speedy V-shaped return as quickly as the onset of the pandemic in 2020.

“We do not believe that this is going to be another steep correction followed by an equally swift V-shaped recovery like we saw at the outset of the pandemic,” said Sequoia’s presentation.

“We expect the market downturn to impact consumer behaviour, labour markets, supply chains, and more. It will be a longer recovery, and while we can't predict how long, we can advise you on ways to prepare and get through to the other side.”

The VC firm partially attributes a slower recovery to the fact that governments all over the world made use of their emergency fiscal and monetary policy shocks to recover from the black swan event of Covid-19 two years ago.

Like others such as Lightspeed Venture Partners and Y Combinator, who have warned startups about the upcoming difficulties, Sequoia suggests immediately cutting burn rates to stock up on cash reserves for the coming months when funding may be harder to come by.

“Don’t view [cuts] as negative, but as a way to conserve cash and run faster,” said the presentation. “Companies who move the quickest have the most runway and are most likely to avoid the death spiral.”

However, Sequoia also suggested that there might be some silver linings, particularly when it comes to the tech hiring competition that has engulfed the startup world recently. With large IT firms freezing hiring for the foreseeable future, Sequoia's presentation said, “recruiting is about to get easier”.

Edited by Megha Reddy

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