Saturday, October 11, 2008

R.I.P. Good Times

The Sequoia Capital, one of the top venture capital investor firms, which has invested in Silicon Valley stars such as Google, YouTube, and much others, organized an emergency meeting this week where it invited entreprenuers/CEOs from its portfolio companies.

Although Sequoia declines to comment the meeting, people that attendees it told that it began with a slide that read "RIP: Good Times". In the meeting, they also said: It is not a “normal crisis” and they also reminded entrepreneurs that tech spending depends on the economy. They told: cut costs, get profitable and “spend every dollar as if it were your last.” The message was that things could get a lot worse than people think.

Another investors and venture capital companies also talking about the crisis.

Ron Conway, a well-known angel investor of the Internet economy, also wrote an email to his portfolio companies this week, with a statement:
"The message is simple. Raising capital will be much more difficult now.
You should lower your “burn rate” to raise at least 3-6 months or more of funding via cost reductions, even if it means staff reductions and reduced marketing and G&A expenses. This is the equivalent to “raising an internal round” through cost reductions to buy you more time until you need to raise money again; hopefully when fund raising is more feasible. Letting go of staff is hard and often gut wrenching. A re-evaluation of timelines and re-focus on milestones with the eye of doing more with less will allow you to live many more days, and the name of the game in this environment in some respects is survival — survival until conditions change.
If you are in a funding cycle, you should raise your funding as soon as possible and raise as much as possible but face the fact that if you can’t raise money now you must cut costs."

Benchmark Capital, a Silicon Valley firm, recently sent a letter to its portfolio companies telling: "financings as we know it just got a whole lot tougher" and also urged entrepreneurs to "be calm, but pragmatic" and "the rules of the game have changed."

John Steuart, a venture capitalist at Claremont Creek Ventures, said: "the window for fund raising has closed."

The investor Mike Moritiz told The Financial Times this week: “It’s pretty clear that demand is going to soften across the board for every company - it doesn’t matter if you’re selling to consumers or companies.”

The final message of the Sequoia's presentation is: “Get real or go home.”

You can read more about in The Wall Street Journal, The New York Times and GigaOm.

The first slide of the Sequoia's presentation:

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