US venture capital firm Sequoia Capital is one of the world’s biggest and most successful investors, with US$1.4 trillion portfolio built up over 48 years that reads like a who’s who of global tech, including Apple, Google, PayPal, YouTube, LinkedIn, Instagram and WhatsApp.
Late week the VC firm wrote to the founders and CEOs of companies it invested in declaring “Coronavirus is the black swan of 2020”.
In investor terms, a black swan moment is a rare but major event that by its nature as an unexpected outlier makes it dangerous.
The Sequoia team didn’t mince words, saying “it will take considerable time — perhaps several quarters — before we can be confident that the virus has been contained. It will take even longer for the global economy to recover its footing.”
From a drop in business activity to supply chain disruptions and cancelled travel, meetings and conferences, the VC firm said founders should “question every assumption” about their business, from cash runway to fundraising, sales forecasts, marketing, headcount and capital spending.
And while central banks are cutting interest rates they point out “monetary policy may prove a blunt tool in alleviating the economic ramifications of a global health crisis”.
Sequoia Capital’s full message is one about the fundamentals of business:
“Having weathered every business downturn for nearly fifty years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses.
“In some ways, business mirrors biology. As Darwin surmised, those who survive ‘are not the strongest or the most intelligent, but the most adaptable to change’.”
The also offer some advice on leadership in times of crisis, saying: “A distinctive feature of enduring companies is the way their leaders react to moments like these”.
Employees will wonder how their leaders will react.
“False optimism can easily lead you astray and prevent you from making contingency plans or taking bold action. Avoid this trap by being clinically realistic and acting decisively as circumstances change. Demonstrate the leadership your team needs during this stressful time,” they said.
You can read the full letter to founders here.