Sequoia Calls Portfolio Companies to Healthier Business Operations
by
on October 08, 2008,
Sequoia Capital is one of the best-known names when it comes to venture funding of startups in the Silicon Valley so everything the firm does is considered as having strong implications for the entire industry. So it is no wonder that the players in the industry are more than worried today now that Om Malik reports that Sequoia held a meeting for founders of its portfolio companies to talk about the economic crisis to them.
The CEOs and founders were met with a gravestone that reportedly read “RIP Good Times” - this was supposed to make sure no one has doubts the situation is really bad and will be getting even worse. The meeting lasted for a few hours when Sequoia partners discussed how serious the economic crisis already is and how it will probably last longer than anyone can expect now.
But of course gathering the crowd simply to tell they should be getting ready for the bad times is not particularly useful - so the portfolio companies were also lectured on how to cut costs with details on how to address each functional area of a business to do just that.
Sequoia is not the only player involved in venture funding of startups to come up with this advice: a well-known angel investor Ron Conway also emailed the startups he funded with very much similar ideas on how to cut costs to survive until it is possible to raise funds again.
And while the tone of all the posts covering the two events is rather pessimistic, the commentators were often of another opinion: there is nothing particularly wrong with this situation and it is actually well-deserved for VC-funded startups. For way too much time everyone involved in the VC industry - both the funds themselves and the startups they funded - behaved like the money was unlimited and the good times will always be there.
Relying on raising funds again and again, startups often forgot to think of their own business models to earn some money instead of constantly raising new funds. And now we basically witness the results of such behavior.
Of course I feel sorry for all the people in the web 2.0 industry who will be left unemployed because of startups laying off staff to cut costs. But still I actually think that the crisis will also serve as a tool to make the entire industry healthier - instead of useless entertainment applications launched daily we will finally see some serious startups with solid business models emerge and grow even in the generally unfavorable environment.
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Another Croatian
John Jones
Svetlana Gladkova
Opensource 
Michael Fidler 
I know of non-dilutive grants from the government supporting engineering headcount to encourage startups to establish engineering centers in Singapore. Does this sound interesting in such times?
You basically plonk a team in Singapore, pay their payroll out of Singapore, and every 3 or 6 months, get reimbursed up to 50% of their base salary. This might be a good way to stretch startups’ existing venture-backed dollars in such tough times.
Does it makes sense? Thoughts guys?
@moto: I have not heard of this initiative before so thanks for sharing, it certainly sounds interesting. I have already read a few analysts predicting offshore outsourcing market will be growing super fast because of the economic downturn since companies will be turning to cheaper labor now that they have to cut costs. But honestly as a Russian living in Russia myself I tend to believe that there may be cases (and quite often) when going for cheaper alternatives will eventually result in paying twice for correcting the mistakes. Unfortunately quality and price often correlate.
This market turmoil is a good environment for Enterprise 2.0 companies to shine. Instead of consumer Web 2.0 startups that rely on advertising dollars to subsidize free services, Enterprise 2.0 could actually thrive if it can help to reduce expenses in the corporate landscape.
Allan, absolutely true and this looks like the biggest advantage we could see from the crisis - finally people will realize how important real value is and will learn the basic fact that free and ad-supported is not always exactly how web applications should operate.