The word spread quickly through the Silicon Valley blogosphere and around the entrepreneurial and venture worlds last night: legendary California venture capitalist Mike Moritz and the Sequoia Capital folks had called an emergency meeting of the firm’s portfolio-company leaders and told them to brace for what might well be the worst economic times they had ever encountered. Reportedly set up for all to see as they entered was a mock grave stone labeled “RIP: Good Times.”
Word of the emergency powwow was first reported by GigaOM’s Om Malik. According to Malik: “The gathering was addressed by at least four speakers, including a brief introduction by Mike Moritz. Doug Leone was another speaker…The message delivered to those in attendance was that things could get a lot worse than people think, and it will be a more protracted downturn. To give a historical perspective, Sequoia had a similar meeting back before the last bubble unraveled. We know how that turned out.”
Malik also reported that speakers went through the various functional areas of businesses and gave instructions or advice on how to cut costs in each. “By holding this special meeting, Sequoia is telling its companies to put survival strategies in place and figure out ways to outlast the broader market troubles,” Malik concluded.
“It was scary,” one CEO told VentureBeat, which also confirmed details of the hours-long meeting. VentureBeat also quoted a CEO as saying, “They were not fear-mongering. They were smart speakers. Sequoia runs on specifics, they’re very data driven.”
Meanwhile TechCrunch, among others, reported that Ron Conway, a well-known Valley angel investor (Google was one of his investments), e-mailed his portfolio company CEOs telling them to hunker down as well. If you are ready to raise money, do it now, was one piece of advice. He also advised entrepreneurs to get ready for lower valuations, look for corporate partners, and “aggressively examine and pursue M&A opportunities.” The full e-mail is here.
Telling portfolio companies to prepare for hard times is not a tough call in the current climate, of course. When we surveyed Xconomists last week for their take on the financial crisis, Michael Greeley, General Partner at Flybridge Capital Partners in Boston, wrote: “The bar has been set even higher for the funding of new investments—but expect that there will continue to be investment activity, especially in the early stage marketplace. Entrepreneurs will most likely be asked to take less capital and focus on near-term milestones. Venture-backed companies will be asked to look at aggressive cost-cutting scenarios to understand worst-case scenarios. And VCs will re-evaluate their reserve policies across their portfolios to ensure that existing investments will be adequately supported.”
I spoke this morning with Paul Maeder, general partner of Highland Capital Partners in Lexington, MA. “We’ve just generally preached cautious optimism, but caution,” he says.
“Eight months ago, we systemically went to all our [portfolio company] CFOs and made sure they didn’t have any option rate securities in their portfolio,” he relates. Those companies selling products, especially those selling to financial services firms, have been told to moderate spending rates, tame their projections, and implement hiring freezes, he says. Right now, Highland companies are being managed very conservatively in anticipation of a significant recession. “But they’re also ready to turn on a time” if conditions improve, Maeder says.
“With respect to the general climate, either Sequoia’s absolutely right, or this is just the time to start buying stocks. Who knows, right?” Maeder says. “I’m just contrarian, and everything is so depressed right now…for all we know this could be a great time to load up on bank stocks.”
