Watch This Slide Show

I’ve always felt that Sequoia was the best venture capital firm in the business and this slide show shows exactly why that is. It’s chock full of data and charts and advice. Kudos to the team at Sequoia who put it together.

#VC & Technology

Comments (Archived):

  1. K T Cat

    Great presentation. Thanks for sharing it with us. I would argue that the mentality that got us here permeates our culture. The theme of self-indulgence runs through that whole presentation as it does through our popular culture. In the end, you have to pay for what you want. We’ve built up a monstrous bill indulging ourselves over the last 40 years and now we’re paying for it.

  2. Steven Kane

    Great presentation.It would be interesting to know – is Sequoia itself belt-tightening? Reducing management fees or fringe benefits or headcounts or… anything?In the last crash, some firms did this.

    1. fredwilson

      Don’t bet on itHas Tom Cruise ever cut his pay?When you are the best you don’t cut your feesAnd they are the best, at least right now, and have been for many years

      1. Steven Kane

        Actually Tom Cruise has indeed cut his fees and several times – by swapping up fronts and guarantees for back end profit sharing and/or corporate equity. (Didn’t you read about viacom letting him go?) And why? Because his fees were so high no one else could make any moneyA cautionary tale…………..?

        1. fredwilson

          I should know better than to use a hollywood analogy on you steve!

  3. CoryS

    I like the [perhaps unintentional] nod to 37Signals on slide 54 – ‘Get Real’. Thanks for the heads up.

  4. Henry Yates

    Brilliant. Loved the scene setting, I have not seen it put that clearly before. Great advice on preserving capital.Does this change your view on “Freemium” as a strategy (slide 46 in particular)?

    1. fredwilson

      Freemium is a great way, maybe the best way, to achieve all the suggestionson slide 46

  5. bernardlunn

    Fred, this is one of the rare times that I disagree with you. Cannot argue with Sequoia’s track record. Their advice is good. Of course companies should keep their costs as low as possible. That has been the obvious for centuries. So last week the advice was “spend like drunken sailors?”. Seriously, this kind of boom one day, gloom the next reminds me of the crazy behavior that got us into this mess. My beef is with this suddenly flurry of VC advice way late in the game of advising their portfolio companies that the economic cycle has turned bad. That was obvious a year ago. Two years ago it was probable. The VCs that I know knew that. Why the sudden flurry of advice after an obvious meltdown? Better than still being in denial I guess. I know this is bad form, but we have been giving measured advice on the changes in the economic cycle on ReadWriteWeb for over a year now. Entrepreneurs/managers need time to execute these kind of changes, so a bit of thinking ahead of the curve is what they expect from their financial advisors. Clever slides, great perspective, good data, good data but a year late IMHO.Bernard

    1. fredwilson

      How do you know that they have not been saying this for several years?I think the slides are very well done

      1. bernardlunn

        The slides are very well done, it was only timing I had issue with. You make a good point (or question), they must have been saying this for years, more quietly. I guess this was like those alarm clocks that start gently trying to rouse you from your slumbers and after numerous gentle attempts make a very loud noise saying WAKE UP NOW! I was reacting to the Blogosphere reaction to the slides as if this was news. Gotta stop that!

        1. fredwilson

          The blog world is worse than the stock market in the way it reacts to thingsEveryone is running around like a chicken with their head cut off

  6. leigh

    Having trouble reading the details in the advertising slide….what was the source for that? (I’m quite curious about the Internet advertising being higher on the slide in the first place?)

    1. fredwilson

      Its not my slide show so I don’t have anything more than I posted and I was having trouble with that too

      1. Simon Brocklehurst

        The source of that data was a TNS Media Intelligence report, I think.

      2. Robert

        Full screen the presentation

    2. Simon Brocklehurst

      Curious in what way? As I read it, that graph is showing year on year percentage growth/decline in advertising spend, by category. It’s not a surprise that Internet advertising spend has been growing rapidly, while spend on other (less measurable, less targeted) forms of advertising has been falling, is it?As of the last data point, Internet advertising spend was still growing, year on year. Difficult to predict the future trend there, IMHO.

      1. fredwilson

        Declines in growth rates are not so troubling unless they go negativeIf internet advertising keeps growing year over year next year, many of thecurrent stock prices of internet names will be looked at as bargains

  7. JLM

    What a great body of thought. In times like this it is not even important if one agrees with things like this as it is to have one’s own ideas tested by the thoughts of smart folks. When ideas wrestle, the result is made stronger by the tussle. This is a very clever, well documented and detailed analysis and I greatly appreciate your making it available. You could/should charge for it. LOLI will make a donation to a local charity in compensation. [I live here. I give here.]I am a particular fan of looking at GDP and debt (whether personal or government) as a percentage of GDP. I also like to correlate this with the Dow.This slide show combined with the comments about leadership are particularly useful just now.As a guy who has bought troubled companies and turned them around since before it became fashionable, I can say that opportunity always comes wrapped in bad news. This is a great time to dig into the horseshit and find that pony!One quick thought: The last time around — S & L crash and RTC in the early 1990s — at the beginning of the assessment (just about now in this crisis), the prognosticators were all saying there was a 30 year supply of single family lots on the ground in major markets (California, Texas, Florida). There was therefore an emerging consensus that recovery was going to take a long, long time. In reality, in 36 months you could not find a lot to buy in those markets and if you had started developing lots (buy the land, zoning, subdivision, infrastructure installation, marketing, deliver lots to SF home builders) right at the darkest moment, you would have been delivering lots right as the sun was rising. I suspect that this recovery will be equally quick. Thanks again for a great piece of data and a thought provoking presentation.

    1. fredwilson

      JLMWhere do you live and I’ll find a local school project to give to via thiscommunity’s donors choose pageThese donations are not cash to the school system (I know you wouldn’t likethat), donors choose buys the items and sends them right to the classroomfred

  8. NYCStartupfiend

    These comments made from the perspective I gained living through and growing a company through the 2002 to 2004 tech bust.These are interesting slides but its important to remember that as entrepreneurs, dealing with this kind of situation is not an impediment to what we do, it is what we do. Be greedy when others are fearful, fearful when others are greedy as the saying goes. Rise up above the noise of the moment and envision the future and focus on it. Thats why they call it being a visionary and a leader after all. Step up and lead.For many – but clearly not all – startups that should exist in the first place independent of the noise of the moment as, the macro tends to be irrelevant. If you have a 0% share as most startups do, does it really matter if the total market size in your area of focus contracts 20% in the short term? Assuming you chose an interesting segment to focus on in the first place, the reality is that your larger competitors (the ones with existing share for whom a market contraction does matter) are doing all kinds of things that make it easier, not harder, for you to out innovate them.The big variable now is cost of capital which for some startups will asymptote to infinity and for many, but not all, will increase meaningfully. However annoying that is, its important not to confuse cost of capital with the reality of the opportunity. So long as your cost of capital does not grow beyond the point at which you can no longer finance growth accretively, focusing on the macro is the wrong thing to do and will distract you with things over which you have zero control. The issue is that for many startups financed during lax boom years, their cost of capital will bimodally go to infinity as the market simply says there is no bid for their project. For companies with a real future focused on intercepting the market need that will be present 2 to 4 years from today, the cost of capital issue is the operative one and each situation is unique. There is no “one size fits all” answer to what they should be doing. For a startup that can continue to attract cheap capital this is actually the time to expand, not contract.While I think that the Sequoia presentation is a good wake up call, every entrepreneur and company needs to interpret it based on their own situation. For some that literally means that its time to pack it up and go find a job working for someone else. For a lucky few, this is the time to pour it on. For most, of course, the answer is somewhere in between.

    1. fredwilson

      It’s all about interpretingDon’t take anything I write or post here at face valueMy hope it is helps each of you interpret where you are and where you aregoing and how and why

  9. Mark

    Marginal. All stuff I did my first year as a financial analyst. All the data is available anywhere. Don’t even need a BB terminal for that.

  10. Tim De Coninck

    It’s a great presentation and for entrepreneurs, these are good times like Sigurd Rinde wrote in:… Problems don’t exist, opportunities do.

  11. Miles Rose

    numbers are numbers. but its all about the emotion now. fear is an overiding emotion. it doesnt leave very quickly. working people have seen real fear and its not going away soon. people don’t feel that they had what they had a month ago. they see it in their 401k’s and the reality of the breakdown of credit worldwide. what do the do, they retrench. people spend when they are comfortable and when they can. numbers are what got us into this mess that and a lot of those in charge having no skin the game of what they sell. if you look at the summer of 1929 and this past summer auto sales both fell 30+%. its time to focus on what life is without spending it. it will be a long tail. money will be made, more money will be lost. good luck.

    1. Scott

      I “perused” and, um, there’s a lot of numbers/graphs.

  12. Andy Freeman

    One of Doug Leone’s slides said “When the product is ready, cut engineers.”If you’re an engineer and you have a choice between a project that is a couple of months from “ready” and one that is a year or so from “ready”, which one do you pick? What should you do when your product is a couple of months from “ready”?Since you can’t assume that a new job will be ready at the same time that your current project becomes ready, the rational response to “cut when ready” is to leave before ready and to avoid projects approaching ready.A company that can’t keep its product pipeline going shouldn’t employ engineers, it should use contractors.

    1. fredwilson

      I am not a fan of hiring and then firing engineers. I believe the engineering team is the heart of a tech company. I prefer keeping it lean and using freelance/outsourcing if you need to temporarily scale up

  13. ipos_will_be_back

    My reaction to most of this is – duh!Frankly, I’m more in Patricof’s school on adapting to these conditions.As others have commented, I’d say that the meat of the message was a bit late but Sequoia deserves the benefit of the doubt that their meeting was meant to be a two-by-four to the forehead of CEOs that had not previously been heeding the winds of change.