11 years ago Sequoia released the “RIP Good Times” Presentation. With the financial crisis meltdown, it was clear that “winter is coming” for startups.
Even though VCs are sitting on large cash reserves, many economists indicate a slowdown in 2020, so it’s prudent to prepare for winter.
Rip Good Times, Sep 2008 
So, is if it’s business as usual and the markets continue to go up is there even a reason to change anything? Like in the Ant and the Grasshopper fable, I would encourage entrepreneurs to keep chugging forward, but there are enough indicators to take a breath and think about what if winter comes early.
While VC investing is at an all time high, and funds remain with plenty of dry powder, take into account that capital may not always be so available. Brad Feld, recently advised funds to ‘slow down’:
“If you talk to LPs today, there is a lot of anxiety about the increased pace at which funds have been deployed, and there has been a two year cycle in the last kind of two iterations of this. I think you’re going to start seeing that stretch back out to three years”.
Brad Feld, Foundry Group
As capital becomes less available and upticks in valuation take longer to prove (unlike what Scott Galloway calls the ‘Softbank effect‘ of multiplying valuations in the billions), controlling cash and tightening the belt might become necessary. VC backed startups value growth above all else (search for “blitzscaling”), but as the recent IPOs showed (Uber, Peloton, WeWork’s prospectus, etc), business fundamentals, and margins in particular, say more about the health of the business than VC-dollar fuelled user growth (see Fred Wilson’s seminal post, The Great Public Market Reckoning):
If the product is software and thus can produce software gross margins (75% or greater), then it should be valued as a software company.
If the product is something else and cannot produce software gross margins then it needs to be valued like other similar businesses with similar margins, but maybe at some premium to recognize the leverage it can get through software.
Fred Wilson, AVC blog
There are also positives for companies starting up in a recession, as it’s easier to secure talent (Corporates, Startups, Universities) and the opportunity costs to embarking on a startup are lower. Has anything changed since 2008? What would a recession look like for startups in 2020? What would you add/remove from Sequoia’s list?
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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