Updated Mar 6, 2020 - Economy & Business

Sequoia Capital calls coronavirus "the black swan of 2020"

Illustration: Aïda Amer/Axios

Sequoia Capital issued a dire warning Thursday to portfolio company CEOs about the business impacts of the coronavirus, suggesting that they "question every assumption" about their businesses, including cash runway, headcount, sales forecasts, and the availability of future funding.

Why it matters: Sequoia, an early investor in Airbnb and Google, is no Chicken Little. The last time it did something similar was more than 11 years ago, at the peak of the financial crisis, via its famed "RIP Good Times" slide deck.

Sequoia partner Roelof Botha tells me that the firm's goal is to "sensitize" companies to the potential for compounded risks, something that most people don't intuitively contemplate. He adds that Sequoia isn't recommending layoffs or hiring freezes, but does believe that companies should "become more deliberate about decisions you might otherwise make casually."

Why now? Botha recalls being CFO of PayPal in mid-2000s, when Sequoia partner Michael Moritz raised alarms during a board meeting about the rapidly dehydrating funding environment.

"He told us we needed to focus on cash runway immediately, and suddenly we're wondering if we'll ever be able to raise money again. Man, did that cause us to get our stuff together quickly. It was the same for companies in 2008. This time we might only be helping buy companies two or three or four weeks instead of six months, but it's better than doing so once it's already too late."

Botha does not currently expect portfolio companies to fail due to the economic fallout from coronavirus — believing it was a more present danger in 2008/2009 — although Sequoia's memo does note how some companies have seen sharp growth rate decreases and are now at risk of missing their first quarter projections.

Sequoia is also making some changes of its own. The global firm had already relocated its annual limited partner meeting from India to Silicon Valley, but now has decided to do it virtually.

  • It also is curtailing international travel (albeit not banning it entirely), and also cutting back on domestic trips. Sequoia's U.S. offices remain open for now, but Botha believes that the "Bay Area is at risk of people being asked to work from home if they can."

The bottom line: Sequoia is saying publicly what many investment firms have been telling CEOs privately: It's now prudent to prepare for the worst.

Go deeper

The coronavirus dip is worse than anything startups predicted

Illustration: Rebecca Zisser/Axios

For the last couple of years, startups have been preparing for a recession, but the coronavirus pandemic and its effect on the economy are unlike anything they predicted.

Why it matters: Even companies that had recession plans and have been modeling burn rates, cash flow, and dips in business are throwing those projections out the window and taking drastic measures.

The forgotten firms in the Senate relief bill

Illustration: Sarah Grillo/Axios

The Senate late last night passed a $2.2 trillion safety net for the American people and American businesses. But not all businesses were included. The package left out thousands of small companies owned by private equity firms.

Details: The legislation includes $350 billion in small-business loans for companies with fewer than 500 employees. That's a liberalization of typical SBA rules, which are more industry-specific in terms of employee number and revenue.

Wall Street's coronavirus anxiety hits new heights

A board displaying the foreign exchange rate of the US dollar against the Japanese yen, next to the Tokyo Stock Exchange in Tokyo. Photo: Kazuhiro Nogi/AFP via Getty Images

Trading activity Sunday night shows the recent tumult on Wall Street will continue.

What's going on: The yield on the benchmark government bond continued its swift slide lower as nervous investors pile into the safe-haven asset, while pre-market trading pointed to steep declines for U.S. stocks. Oil prices dropped sharply.