Your hiring process should be slowed! Marketing should be cut! Extend your runway!

Venture capital is back and it’s hot.

Technology stocks crateringThrough the first five months 2022, the Nasdaq is on track for its worst quarter since 2008, with start-up investors telling portfolio companies that they will not be spared from the financial fallout.

Sequoia Capital is a legendary venture capital firm that made early bets. “It will take a longer recovery. Google, AppleWhatsApp wrote in 52 pages presentationCNBC acquired a copy of the article titled “Adapting for Endurance.”

Y Combinator is the incubator for start-ups that has helped to spawn Airbnb, DropboxStripe and told the founders of an emailThey were told last week to understand that poor performance in the public markets of technology companies has a significant impact on VC investment.

This is a sharp contrast to 2021 when investors were rushing to buy pre-IPO companies with sky-high valuations. Deal-making was occurring at a frenetic pace, and software startups were commanding multiples. 100 times revenue. This era was characterized by a prolonged bull market for tech. The Nasdaq Composite saw gains in 11 years and venture capital in the U.S. reached $332.8 million last year. That’s sevenfold more than a decade ago. According to the National Venture Capital Association.

This sudden shift in mood is similar to 2008 when the collapse of the subprime mortgage markets infected all U.S. banks and led to the nation’s recession. Sequoia released the famous memo entitled “R.I.P. Good TimesThis statement was made to new start-ups by declaring that both “cuts” and “need to be cash flow positive are essential.”

Sequoia’s timing has not always been perfect. According to Sequoia, March 2020 was the year of the Covid-19 pandemic. implored foundersMarketing should be restructured to allow customers to reduce spending. Customers must also evaluate whether they can achieve more from less.

Technology demand has increased, and it is clear that technology will continue to grow. NasdaqLow interest rates and an increase in spending were the key factors that led to its greatest year since 2009. products for remote work.

Sequoia’s words sound more like Silicon Valley’s emerging wisdom this time. In November the market turned, and companies that went public slowed to a halt for 2022. Crossover funds, which fueled so much private market boom, have been struggling with the historic losses they suffered in their public portfolios. Deena ShakirLux Capital has two offices: in New York City, and Silicon Valley.

Sequoia’s presentation stated that this time there was no policy “quick fix” solution. It stated that the government’s proactive response to early 2020, which consisted of injecting money and keeping borrowing rates artificially low, was what the company missed. buying bonds.

Sequoia stated that “this time many of these tools have been exhausted.” “We don’t think this is going be another abrupt correction that leads to an equally rapid V-shaped recovery, as we saw in the early days of the pandemic.”

Sequoia encouraged companies to consider projects, R&D, marketing, or any other area that could help cut down on costs. Sequoia advised that they don’t require companies to pull the trigger immediately but to be prepared to go back within 30 days, if necessary.

Major public tech companies have been reporting on job cuts and hiring freezes. Snap, Facebook, UberAnd LyftThey all stated that they would reduce hiring in the coming month, RobinhoodAnd Peloton Announced job cuts

Even among private firms, reductions in staff are taking place KlarnaAnd CameoInstacart, however, is reportedlyThe expected first public offering will see slowing in hiring. Six months after Cloud Software vendor Lacework was valued by venture investors at $1.3B, Lacework has announced that it will be cutting its staff.

Lacework explained that Lacework had modified his plan to boost cash runway and profitability. He also significantly increased our balance sheet to be more opportunistic regarding investment opportunities. blog post.

Tomasz TunguzRedpoint Ventures’ managing director, Jeremy Redpoint, said that start-up investors advise their clients to have enough cash in reserve for two years, so they can avoid any future financial difficulties. It’s an entirely new topic that is being discussed, along with hard discussions on valuations or burn rates.

Shakir agreed with this assessment. She wrote that Lux had been encouraging companies, like many others, to think long-term, to extend runway to two years or more if necessary, to reduce burn and improve gross margins and to start setting expectations for near-term financings not to be as good as they might have expected six to twelve months ago.

In the following: postLightspeed Venture Partners started May 16 with the headline “The Upside to a Downturn.” One sub-headline reads: “Cut non-essential activities.”

Lightspeed said that “many CEOs will have to make hard decisions in order keep their companies afloat” in these turbulent times. Some will have to make trade-offs which, a few months back would seem absurd or unneeded.

Lux highlighted one of those difficult decisions that it expected to face. According to Lux, several businesses will have to make difficult decisions.

Venture companies are quick to remind founders that the best businesses come out of difficult situations. The idea is that companies who prove they are capable of surviving and even thriving in times when capital is scarce will be able to thrive once the economy rebounds.

Sequoia explained that hiring freezes are a good thing for those companies looking to add more employees. Lightspeed also noted that the technology industry will not be affected by what is happening on the market.

Shakir explained, “Despite all of the doom and gloom talk, we still believe in the potential to build and to invest in generational tech companies.” It was encouraging to watch our chief executives exchanging tips and information, feeling both inspired and humbled at the same time by these new conditions.

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