“Nobody knows anything” – screenwriter William Goldman, on the film industry
Sequoia Capital is widely (and, in my opinion, correctly) considered to be the best venture capital firm on the planet. Their list of hits include Apple, Oracle, Cisco, Atari, EA, Google, Yahoo, and Paypal (and that’s just counting the investments of two of their partners – Don Valentine and Mike Moritz).
While acknowledging that the economy always goes in boom-bust cycles (to which VC investments are especially susceptible):
Sequoia said this downturn would be different:
They didn’t include numbers on the X axis but since average recessions take about 2 years from which to recover, the implication was this recovery would take much longer:
And that the tech sector in particular would suffer:
Their advice for VC-backed firms was to cut spending quickly and assume that VC markets will be effectively closed for a long time:
Flash forward to 2010, Sequioa just led a rumored $25M-$30M funding round in Tumblr at a valuation of approximately $150M. Tumblr has great user growth but reportedly little or no revenues. Very smart people like Fred Wilson seem to think a VC bubble is looming. The good times appear to be back.
I say this not to criticize Sequoia – they are the smartest investors around – but just to point out that even the smartest investors have no idea what lies ahead. The only way I know to function in a world of so much uncertainty is to focus on fundamentals – great people and long term trends.