Venture capital firms have very bad news for startups
Venture capital firms such as Sequoia Capital and Y Combinator have sounded the alarm for start-ups that the days of easy capital raising are over.
The well-known VC sent 250 founders a 52-slide presentation via Zoom on May 16, alerting them to a “crucible moment” as higher inflation rates, stock market volatility and several geopolitical issues have leads to less certainty in the venture capital market. The presentation was seen by The Information.
Sequoia told the startup’s founders that there likely won’t be a “rapid V-shaped recovery like we saw early in the pandemic,” and instead recommended that they assess their businesses for costs that could be reduced.
“Don’t view (cuts) as a negative, but as a way to save money and run faster,” Sequoia wrote.
A juggernaut in the venture capital world, Sequoia, founded in 1972, has successfully invested in tech giants such as Google ( (GOOGL) – Get the Class A report from Alphabet Inc.), Apple ( (APPL) ) and Uber ( (UBER) – Get the report from Uber Technologies, Inc.) and other well-known companies that are often used by consumers like AirBnb (ABNB) – Get the Class A report from Airbnb, Inc.Stripe, Block (SQ) – Get Block Inc Class A Report (formerly Square), Instagram ( (Facebook) – Get the Class A report from Meta Platforms Inc.) and WhatsApp.
Sequoia, the Menlo Park, Calif.-based venture capital firm that’s quick to alert its portfolio companies that cost-cutting is now a priority, issued a similar warning in 2020 titled “Coronavirus: the black swan of 2020and also presented a slide presentation in 2008 warning of the Great Recession and the financial crisis that began with the collapse of the housing market titled RIP good times.
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Another grim warning
The venture capital firm has made 76 investments so far this year, compared to a slower pace in the first half of last year when it poured money into 85 startups, according to data from Crunchbase. .
As of November 2021, the VC held $45 billion in public positions and over the past 15 years has distributed $29 billion to its limited partners while investing $12.5 billion.
Y Combinator, a startup accelerator, also issued a grim warning to its companies last week
“No one can predict how much worse the economy will get, but things don’t look good,” the accelerator wrote in a letter the portfolio founders received titled “Economic Downturn.” “The safe move is to plan for the worst.”
Software bank (SFTBF) said in May that it would change its criteria for choosing investments after announcing a $27.7 billion loss on investments in its Vision Fund.
Large losses in the public market can lead to diminished capital in the venture capital world as limited partnership investors pull back.