Sequoia Capital is one of the world's top venture capital firms, and an early investor in everything from Apple to Google to Oracle to Instagram and Yahoo. 

This week it sent a memo to the leaders of its investment portfolio companies, warning about the possible effects of the coronavirus.

Bottom line upfront: "Coronavirus is the black swan of 2020."

You may not have investment from Sequoia--or any investment at all. But as much as none of us really wants to hear this, it's worth knowing that Sequoia is telling its companies to "question every assumption" about their firms:

"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."

As Axios reminded people Friday, the last time Sequoia sent out a dire memo like this, it was a 56-slide presentation entitled "RIP Good Times," right about the time of the start of the 2008 financial crisis.

Back then, as TechCrunch put it: "Of course all this negativity helps create the very downturn that venture capitalists are warning their companies to defend themselves against..."

Among the warnings now, Sequoia says: "[M]any companies in frontline countries are facing challenges as a result of the virus outbreak," including drops in business activity, disruptions in supply chains, and a downturn in terms of "travel and canceled meetings."

So, their advice to their portfolio companies is as follows. Think of this as a possible cheat sheet for your business--especially if you don't have a multi-billion dollar venture capital firm invested in you.

  • Think through how much cash you have. "Do you really have as much runway as you think? Could you withstand a few poor quarters if the economy sputters?"
  • Don't count on raising money. "Private financings could soften significantly, " Sequoia warned, but added a bright side: "Many of the most iconic companies were forged and shaped during difficult times. We partnered with Cisco shortly after Black Monday in 1987."
  • Be forewarned that sales might just fall apart. "Deals that seemed certain may not close. The key is to not be caught flat-footed."
  • Take a hard look at your marketing spend. "You might find that your customer lifetime values have declined, in turn suggesting the need to rein in customer acquisition spending."
  • Examine "headcount." I've always hated this word for "number of employees," but here we are: "Evaluate critically whether you can do more with less and raise productivity."
  • Take a look at capital spending. "Examine whether your capital spending plans are sensible in a more uncertain environment."

As Dan Primack, Kia Kokalitcheva wrote on Axios in covering this -- and as much as I hate to quote these sentiments here-- the bottom line is that, "Sequoia is saying publicly what many investment firms have been telling CEOs privately: It's now prudent to prepare for the worst."

Published on: Mar 6, 2020
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