On March 5, Sequoia Capital released a dire caution to its portfolio company CEOs, informing them to “question every assumption” about their services.
Flashback: At the time, the WHO wouldn’t categorize COVID-19 as a pandemic for another two weeks. The NBA was still playing games in front of fans. Congress had just dedicated $8 billion to fight the infection, thinking it to be an enough amount, and non-citizen travel from Europe into the U.S. was still permitted. Kids were still in school.
Nine months later on, Sequoia’s letter stands as prophetic, befitting a firm long seen as equity capital’s platinum standard. And, like with Sequoia’s “RIP Prosperities” warning from October 2008, this one is worthy of credit for waking business owners– and other VCs– to the mortal threat before it was far too late.
- The goal, as Sequoia’s Roelof Botha informed me at the time, was to “sensitize” companies to compound danger, which is something people don’t intuitively ponder (especially when it comes to public health).
- Sequoia didn’t tell individuals their businesses were on the edge. Rather, it provided a quick playbook for how to minimize the odds they ‘d reach that point, encouraging creators to recalibrate money presumptions and reconsider budget in areas like marketing and brand-new hires.
- In short, the very best way to keep the lap of luxury rolling was to give it a respite.
No, Sequoia didn’t get whatever right.
- The company suggested it would take “maybe a number of quarters before we can be positive that the virus has actually been contained.” Clearly an underestimation.
- It likewise argued that Fed rates of interest cuts “might show a blunt tool in relieving the economic implications of an international health crisis.” That was true, however ignored to predict how monetary policy would help cleave the financial investment economy from the real economy, and how that dichotomy would keep sustaining private and public equity deal-making.
The bottom line: We need to all hope Sequoia never once again feels forced to pen another of these letters. However, if it does, we ‘d best take note.
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