What you're missing is the larger picture.

Anyone paying attention in the industry knew in 2019, pre-pandemic, that something wasn't quite right. Companies were hiring way more people than they needed, growing way too fast, building products that didn't make sense, pivoting to increasingly user hostile products, etc. But it kept going because VC and other investor money just kept flowing in.

Then pandemic hit. Everyone who thought things weren't right in 2019 expected the reality check to finally be cashed and for a major industry correction to happen. It should have happened. But it didn't.

Instead the Fed poured incredible amounts of money into the market. We saw stocks instantly u-turn and companies that in 2019 you were suspicious of were all of a sudden getting even more ridiculous valuations.

This happened for what is in retrospect and obvious reason: Big name investors and VCs needed time to cash out. And they got it. We saw two years of record numbers of IPOs. Myself and many others pointed out over a year ago that something wasn't right, that this looked like investors rushing to cash in their chips and get out before everything came crashing down.

Inflation started to rise, and indeed the game came to an end. Now we're going to see a crash that will be much harder than we though we would have seen in 2020 because policy has allowed already unhealthy companies to explode and grow even larger. And they're all interconnected so it's going to be ugly.

How many of your company's customers are other start ups or other tech companies? We have a generation of companies led by people who have never really seen a recession, forget one that impacts tech, completely clueless about what's coming. First we saw consumer spending absolutely wreck big name companies bottom lines. But this is very likely to start spreading as more startups that depend on other startups revenue streams start to miss their targets.

This current generation of founders might be clueless about recession and major downturns, but the people in charge at places like Sequoia sure as hell aren't.

On the outside, VC should theoretically be about value investing in the best startups that have sound fundamentals and can grow. Practically, when the market is optimistic and everyone wants to invest in high growth startups, the game can become about "passing the bag". Invest in a company at a low valuation in their seed or series A and wait for a later stage investor to come in and be the one left holding the bag. Ideally, the startup generates enough hype to IPO and then all the investors have a successful exit. You can see this trajectory with startups like WeWork.

When the market is not that optimistic anymore and people are in conservation mode, there's no one to pass the bag to anymore so VCs have to appropriately adjust which businesses they are going to invest in and the valuation.

This is why hype, signaling and FOMO plays such an important role in fundraising. It is about whether the startup can generate enough promise to convince others that they're a high growth investment vehicle and not as much about whether they are profitable in the short term.

The market has cycles where is goes from loving startups that burn cash with the aim of “growing big” and then figuring out the business to absolutely despising these models and flushing them out of the system. We’re at that pivot point now in the cycle.

Startups with cash on hand and generating cash from operations will have some bumps in the road and probably take a big hit to their valuation, but with make it through. Startups still trying to figure out how they’re going to “make money” and without a ton of cash on hand to give them a long runway likely won’t make it through the next 18 months.

Is there significant inflation due to the Ukraine war?

Inflation started to take off about April last year, and was 7.9% at the end of February this year when Russia invaded Ukraine. Since then it rose about a half percent and then started to drop, as sanctions have been implemented.

> I don't understand what it changes for vc

Their portfolio companies can go bankrupt. It is a Darwinian (survival of the fittest) moment for all the companies at this time.

We’re experiencing a (likely) shrinking economy, with fewer customers who are spending more conservatively. VCs want their companies to succeed and preserve wealth.

When the Fed raises rates, they do so by reducing the quantity of money in the economy until rates hit their target. There's just less money sloshing around to be invested, and the banks and financial firms who are closest to money issuance and the Fed are more quickly and severely impacted by that.

they want to create an event to what things will be in motion. a reset. it helps them clean their investments that will not work. usually there are two ways to do it. make someone else invest after your round or create a scenario in which it doesn't make sense for anyone to invest (except if you are an obvious winner with an amazing product). just as inflation is a buzzword that allows companies to mark up their price way more than they were before (but even when the inflation numbers were low or 1% I can garantee you that those companies products prices were increasing more than that. It is just that thanks to "inflation" they cant mark up to 10-20% now.) It is a scam and the looser as always will be the blue collar and the middle class.

>So the fed is going to increase the rate, sure.

I believe fed is on a pause.

The party was over in 2008 too, yet here we are.

It's some kind of internal discussion deck of people giving ideas about what the future might hold based on their experience. It's almost certainly wrong, but in context it's almost certainly framed as advice and not a research project for publication.

I'm not quite old enough to remember Black Monday, but I remember all the rest. I have the exact same feeling. The 20% correction is already done.

When I saw that CryptoLand video last year I immediately through of the E-Trade monkey superbowl commercial.

However, there is still risk that could make this current situation last longer and be more painful than I think we anticipate. If corporations start laying off workers and/or if the general public gets spooked enough to stop spending, that could actually induce a deeper recession than I think you and I are currently expecting.

No doubt there is some short-term negative news coming out this summer. The question is what the sentiment will be like come early fall. I think that's when we will know how bad this is going to be. It might be over by then. Hopefully.

I agree with you re: why slides are a terrible way to convey information, but in this case each slide has a page-long summary with their talking points. If you care to read, it's almost like being in the room with them.

Bear rallies are fierce. I do not think we've hit bottom yet. Notably this opinion is shared by Michael Burry, Jeremy Grantham, and Ray Dalio, among others.

They're not telling people to sell their Nasdaq positions.

They're telling their portfolio companies to shore up their balance sheets and extend their runways in case raising money at previous peak multiples continues to be difficult.

I'd take your comment with a much larger grain of salt. Be aware that all of Sequoia's existing VC investments are getting marked down drastically as well. Private company valuations don't just magically stay at above market levels when the public markets go down.

Sequoia is the top of the top, I don’t think they think like this

Disagree. They want to maximize the number of portfolio companies that survive in an environment where a significant fraction will not. This is a message that the money faucet has turned off, and that there will be pain - a timely breakdown of the ongoing macro effects. Note how "raise more money" is at the very bottom of suggested actions (pg35).

> Time to get your team's commitment for the path forward or... politely ask them to lighten the lifeboat

That's a gem.

Technicality: Sequoia Capital is not a hedge fund. It's a private/venture capital firm.

Just for others seeing this, the content of the deck is in fact new. I could totally see how the advice may be the same as a prior deck though.

Guessing you mean this one: https://www.dropbox.com/s/5db0iwb57zls7k7/RIP%20Good%20times...

Similar "Recovery will be Long", "Survival of the Quickest", etc, themes.

They predicted COVID in 2008?? Why didn't they warn anyone?

(it isn't the same deck)

It says May 2022 in the slides.