Adapting to Endure - Sequoia Capital

Sequoia Capital is the latest big name VC to warn founders about uncertainty in venture capital due to inflation and geopolitical turmoil. Slides here.

The cost of capital has gone up, valuations in public markets have gone down and are paying less for growth, the impact of these shocks will have second order and third order effects (like housing prices up 60+%).

In the short term, profitability is favored to growth in a downturn. While the Nasdaq is down, Morgan Stanley’s unprofitable tech index is down 64%. In the mid to long term, durable growth is best—improving margins and growth.

The drop in the market is steep and recovery takes a long time.

Be quick to cut expenses to avoid a death spiral. “In 2008 all companies that cut were efficient and better.” It’s not about being the strongest, but being the most adaptable.

There’s an opportunity in a down turn. FAANG companies all have a hiring freeze. Your competitors may not adapt and end up in a death spiral.