Sequoia BS . . . and the Stepford Wives of Sand Hill Road

By Tom Foremski - October 29, 2008

I've been covering the venture capital community for many years and I'm always mystified why they all act like sheep yet think they are wolves.

Why is the VC community running around like Chicken Little saying the sky is falling when their horizons aren't in the now, they are in the future?

If I'm a startup, what do I care about what the economy is like today? I care about what the economy is going to be two to five years out.

If the sky is falling today it likely isn't falling one or two years out, paradoxically these are good times.

As a startup you should be investing for that future and working to line your ducks up instead of cutting valuable people and cutting back on outside services such as PR and social media relations.

The savviest Silicon Valley companies know that you double up your investments in down times because business cycles are cycles: you want to be ready when the upturn comes.

Since you can't time market swings you are better off building a company in down economic cycles because you know there is going to be an upside.

That's why the Sequoia RIP presentation is puzzling. Why are these VC veterans reacting to what has been happening now rather than positioning for what's coming next?

Could it be a that Sequoia is hoping that it can scare competitors to its portfolio companies into cutting back, pull their foot off the pedal? And that that would give their companies a fighting chance? Is it a setup? That's what I would do, but I don't think Sequoia is quite so Machiavellian.

Sequoia has been a huge influence on the VC community. I've come across many people telling me that their VCs are all the same, telling their startups to cut, cut, and cut some more. One of my contacts says: "It's interesting, all the VCs are using exactly the same language." These are the Stepford Wives of Sand Hill Road.

But there are VCs and plenty of others, prepared to call BS when they see BS, and they don't act like sheep, and they are continuing to fund.

This is a good time to invest, this is a good time to startup, imho.


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October 29, 2008 | Permalink | Comment | Category: Silicon Valley | Subscribe to SVW

Comments (14)

I absolutely agree with you and we are actually doing this for quite some time now, even when we all saw what is coming and when it came. Sales are up and we did cut some PR/ad costs. Your article is very, very good. Thanks


RZB:

Agreed ...

Some of the ‘immature’ VCs also deserve to go out of business, just like the banks and the money that funds them.

A lot of VCs are not 'built' for hard times as they have never ever experienced it personally, especially around SV. In many cases, the arrogance and bad manners are beyond comprehension and a total waste of their private school education.

Unfortunately, there is very little strategic thinking and too much hype about their individual 'wisdom'. Majority lack leadership and largely subscribe to a ‘flock mentality’ that propagates in both directions … just look at their combined investment ‘wisdom’ displayed during the last tech ‘bubble’.


I think the crisis in a VC's mind is asking a company to act more like a traditional company than a sky rocket. Typically funding round is followed by funding round, diluting the founder along the way so running out of money is not part of the business plan.

Living within your means, not taking on debt and acting in a rational way, meaning having a revenue source is a crisis for some.


Tom,

Tomorrow's Halloween, and it's raining, so do I go with the reassurances you provide here, or with the horror I derive from your piece on derivatives?! I'd like a hedge please!

cheers,
adrian


I loved this posting, Tom. I personally think this is the time to invest in new ventures and already be in production when things turn around and then expand in next several quarters (esp. if Americans vote for change intelligently). That would enable higher valuations on businesses already running than merely in survival mode.

Here is my article that has appeared in several countries and publications:

Part 1:
http://imran.com/media/blog/2008/10/profit-from-meltdown-part-1-as-world.html

Part 2:
http://imran.com/media/blog/2008/10/profit-from-meltdown-part-2-huge-profit.html

I can imagine VC's cost of capital being high so them not wanting to have startups buy foosball tables etc. makes sense. But, most industries in the USA unfortunately are led by lemmings acting as leaders.

Regards

Imran
http://imran.com/media/blog/


Sheri Starko-Jones:

Hi Tom, I think your analysis of VC's is right on the money, however, it is unfair to the intellligence of Stepford Wives. The relationship between the wife of a VC and the VC is like a dog and a fire hydrant.
At least their Stepford Wives get 50% of the assets before moving on to the next hydrant.


Tom Foremski:

Sheri: You are too funny :-)


Skycut:

"Could it be a that Sequoia is hoping that it can scare competitors to its portfolio companies into cutting back, pull their foot off the pedal?"

This is exactly what their intent was.


Game theory – could a major VC funds be locked up in Lehman’s bankruptcy?

The "Nash equilibrium" a state, in which cuts and layoffs are best solution for Sequoia if all the VC's do the same?

see URL


Tom,

I suspect that they are trying to scare other lower tier VCs from investing in competitive companies and also trying to send a message to purchasing decision makers that they shouldn't consider buying from a company whom hasn't already raised a large sum of capital, because they it's unlikely that funding will flow. That was my initial read - though I don't know them well enough to support that opinion.

In any case, the realities are:

- be like Warren Buffet - invest now when opportunity exists
- hire the best people on the planet because they are becoming available
- kick ass and grow the company responsibly
- pass by those who are pulling in the reigns
- be accountable for everything
- take care of your customers and WIN

cheers Tom - great post!
@mwalsh


Tom Foremski:

Thanks for all the supportive comments to this post online and offline. It has struck a chord with a lot of people.


Tom Foremski:

Kevin: Thanks! Dean has done a great job explaining capital calls...


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