Monday, November 17, 2008

Venture Capital: From the Valley Comes a Warning

From DealBook:

Maybe it was the tombstone that did it. Even as Wall Street burned, Silicon Valley seemed strangely sanguine. Then a PowerPoint presentation from Sequoia Capital prophesying Armageddon — featuring an “R.I.P. Good Times” headstone — made the rounds. A month later, venture capital firms are slashing investments and counseling portfolio companies to cut jobs. Sequoia’s warning may reflect the technology industry’s woes, but it’s more notable for what it says about venture capital.

Maybe it’s because venture capital’s traditional gravy train — initial public offerings of fast-growing start-ups — had slowed. That, coupled with the severity of the 2000 dot-com crash, gave the industry a false sense of immunity to financial hard times, says Breakingviews.

Then came the Sequoia document. The firm — which had financed Apple, Google and Yahoo — showed its portfolio companies a presentation on why this financial crisis could be the worst yet and advised survival tactics like layoffs.

The presentation burned across Silicon Valley like wildfire. When one of the most successful firms moves in a club known for herdlike behavior, everyone takes notice. Other investors, like Benchmark Capital, advised their companies to conserve cash. Layoffs began en masse....MORE

See also last week's post "Trouble on Sand Hill Road. And: Greentech Innovations: Green VC Crash Coming in 2011".