Managing a Crisis the Sequoia Way

Control what you can control. Be steady but decisive. And most importantly, build a sustainable business where you are in control of your destiny.

Roelof Botha, Sequoia Capital



Lately, I’ve been seeing something I’ve never seen before in the eyes of some of the founders I meet: desperation.


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Fundraising is increasingly difficult, tech has gotten crushed and the economy is almost surely in recession. Companies that were doing great just a few months ago are staring death in the face.

With that in mind, I spent this afternoon digging into Sequoia Capital’s recent presentation on what the downturn means for startups.

It offers the best advice available for startups navigating this difficult market. Sequoia’s partners advise startups to be prepared to cut back to ensure survival, if necessary.

If your runway (time until you run out of money) is getting short, you may have to make painful cuts in spending.

Do the cut exercise (projects, R&D, marketing, other expenses). It doesn’t mean you have to pull the trigger, but that you are ready to do it in the next 30 days if needed.

Doug Leone, Sequoia Capital

Sequoia also emphasizes that this crisis offers many opportunities. Many companies are more focused once they cut back and hunker down for a bear market.

What’s more, recruiting, which has been extremely difficult for many startups, is about to get much easier. As Leone notes, all of the FANG companies have hiring freezes.

This means startups can have their pick of the best possible people.

Even better yet, some of your competitors are about to go out of business! But if you carefully manage cash, you’ll survive and have a chance to dominate your market.

Look at this as a time of incredible opportunity. You play your cards right and you will come out as a strong entity.

Roelof Botha

This downturn doesn’t mean that you have to stop growing. But it may mean paring back side projects to focus like a laser on driving efficient growth in your core business.

You can still sign up customers in a downturn if you have a strong value proposition. Since I mostly invest in SaaS, I found this passage on proving value to business customers especially helpful:

Three reasons why people buy regardless of market conditions (enterprise POV):

● Drive growth

● Save money (real, hard ROI)

● Reduce risk

● Everything else is fluffy “

Carl Eschenbach, Partner, Sequoia Capital

Finally, it’s important to remain hopeful even if things get hard!

“Whatever we are facing today, it can’t be any worse than the uncertainty we faced at the beginning of the pandemic. We will prevail.”

Alfred Lin, Partner, Sequoia Capital

You created your company for a reason. You have a mission to fulfill.

A downturn doesn’t change that. You just have to manage it correctly and seize the opportunity it presents.

The very best of luck to all you brave founders!

What challenges are you seeing in startupland today? Leave a comment at the bottom and let me know!

More on tech:

TALKING STARTUPS AND TODAY’S FUNDRAISING PULLBACK

TALKING ABOUT TODAY’S STARTUP MARKET ON THE ACCELERATOR PODCAST

THE BURN MULTIPLE: WHAT IS IT, AND WHAT CAN IT DO FOR YOU?

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SEC May End Payment for Order Flow

The SEC may soon propose an end to payment for order flow. This controversial practice lets market makers buy the right to execute trades, particularly those of retail investors.

From a report that broke in The Wall Street Journal last night:

Chairman Gary Gensler directed SEC staff last year to explore ways to make the stock market more efficient for small investors and public companies. While aspects of the effort are in varying stages of development, one idea that has gained traction is to require brokerages to send most individual investors’ orders to be routed into auctions where trading firms compete to execute them, people familiar with the matter said.

The SEC’s proposed trading changes could take effect later this year or in early 2023:

After a year of internal deliberations, the agency has homed in on a narrowing set of proposals. If the SEC votes to release them for public comment later this year, they would have a path to implementation, as Democrats hold a majority of seats on the commission.


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Market makers competing against each other to offer the best price should be much fairer than the current system. Today, large market makers like Citadel Securities can pay brokers like Robinhood Markets for the right to execute trades.

Citadel and other major firms may be dragged kicking and screaming into this fairer market:

A spokesman for Citadel Securities said the firm looks forward to reviewing the SEC’s proposals and working with the agency.

“It is important to recognize that the current market structure has resulted in tighter spreads, greater transparency and meaningfully reduced costs for retail investors,” the spokesman added.


Citadel’s spokesman conveniently fails to mention that the firm was fined $22 million by the SEC for not giving investors the best price on their trades.

But in fairness, one study found that payment for order flow has resulted in lower costs. Those payments have let many brokers reduce their commissions to zero.

Despite zero commissions, the price brokers give investors may be so bad that the investor loses in the end.

Brokers claim that payment for order flow trades are being executed at the best available price. But to this day, I’ve never seen a broker release a data set proving it.

An auction model is much more transparent. It could go a long way to restoring retail investors’ confidence in financial markets.

What do you think of payment for order flow? Leave a comment at the bottom and let me know!

More on markets:

Hedge Fund Tiger Global Losing $136 Million a Day, Down 52%

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Credit Suisse May Need Up to $1 Billion After Huge Losses

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Misfits Market

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Photo: “CMI 101: Demystifying Derivatives with CFTC Chairman Gary Gensler” by Third Way is licensed under CC BY-NC-ND 2.0.

A Special Weekend in Stokes State Forest

I walked up the cracked country road, wildflowers on either side. The birds sang and a rustle in the bushes made me turn my head.

A chipmunk! The little grey man stood still, awaiting my next move.

I tried to get a picture, but he was too fast!

This weekend I had the joy of visiting Stokes State Forest in northwestern New Jersey. Our state may be known for chemical plants and garbage dumps, but in these verdant woods, you’d never know it.


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The land undulates gently, slowly rising into broad, thickly wooded mountains. Tucked away in that woods was our campsite.

I returned to our temporary homestead after my stroll, dropping into my lawn chair with a groan. Burgers sizzled on the grill.

After a wonderful dinner and many laughs with friends, I retired to my tent on the edge of the forest. There’s something peaceful about making your bed in nature.

Stokes State Forest has excellent camping facilities that I’d recommend to anyone.

There are real bathrooms nearby, and they’re actually clean! The dispensers always have soap, a rare amenity in the woods.

A short drive away were the showers, and I felt like a new man after lathering up there on Saturday!

The campsites themselves are spacious and provide a good distance between you and other campers. But the water might be the best thing of all!

Stokes has an artesian well that provides some of the best-tasting mineral water you’ll ever drink! Locals who aren’t even camping drive into the forest to fill dozens of plastic bottles from this pristine spring.

When we’re camping, my friends and I don’t have to worry about getting home. Home is a tent just a few feet away!

There is no other time in this hectic modern world where I get to spend days at a time with some of my favorite people. That’s why camping is special.

If you’ve never camped, give it a try! Stokes is just over an hour from New York City and its natural beauty is more than worth the trip!

What are some of your favorite experiences in nature? Leave a comment at the bottom and let me know!

More on the outdoors:

How Camping Is Improving My Life

Pine Barrens Glamping in Brendan Byrne State Forest

My Camping Essentials: The Basics, The Wishlist, And The Things I Never Thought I’d Need But Can’t Live Without

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Dealgrace: Uber for Everything Else

Uber is great for rides and food. But what if you need an oil change?

You’re stuck wading through Google listings and making phone calls, trying to find an affordable option that isn’t 20 miles away. Until now.

Dealgrace is basically Uber for everything else. Request an oil change through the app and you get a text within minutes with an excellent price at a shop near you.

Dealgrace can help you with auto repair, home repair, moving, even finding a dentist! It replaces the painful, time consuming process of comparison shopping with a slick app that gets you what you need right away.


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The team at Dealgrace carefully vets every business on the platform to be sure you get awesome service. And the prices are very hard to beat.

I think the opportunity for Dealgrace is huge and I’m delighted to be an investor in their recent seed round. They’re live in over a dozen cities so far and are adding more every day!

Check out Dealgrace and save yourself time and money!

More on tech:

Have a great weekend everybody! 👋

Why Tech Stocks Are Oversold

Talking Startups and Today’s Fundraising Pullback

The Autonomous Weapons of the Future…and Present

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Hedge Fund Tiger Global Losing $136 Million a Day, Down 52%

The pain continued in May for Tiger Global Management. The hedge fund giant is losing money at a rate of over $130 million a day and most of its capital is gone.

From a Bloomberg report that broke this morning:

Losses at Tiger Global Management reached 52% this year, prompting the firm to cut management fees and create separate accounts for the illiquid wagers of customers who want to redeem. 

The firm’s hedge fund sank 14.2% last month, buffeted by losses in several stocks and substantial markdowns in its private assets, according to an investor letter seen by Bloomberg and a person with knowledge of the matter. 


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This comes after massive losses in April:

By April, the hedge fund’s 44% tumble, along with losses in its long-only and crossover funds, wiped out about $16 billion.

These figures put Tiger’s capital at the beginning of 2022 at around $36 billion. After April’s loss, a further 14% slide in May represents a $2.9 billion wipeout for the month.

May’s losses came to about $136 million per trading day. Every day.

As colossal as these losses are, they may be an underestimate of the true damage. Tiger has taken markdowns on its shares in private tech startups, but we have no way of knowing if those markdowns reflect reality.

Another large late stage investor, Fidelity, has taken only minor markdowns on its portfolio, including a 13% haircut on Stripe. Block, a similar fintech giant that happens to be publicly traded, is down 70% from its August high.

Tiger too may be engaging in this sort of wishful thinking.

If that wasn’t bad enough, Tiger may soon face attack from other hedge funds. It has allowed investors to pull out more money than usual, which will require huge stock sales.

Other funds are likely to short Tiger’s positions, knowing that Tiger has to sell regardless of price. This could make Tiger’s losses even worse.

So what’s next for Tiger? Their high-water mark means that until the fund recoups all its losses and a lot more, fees will be minimal.

Those fees pay the fat bonuses hedge funders are used to. Without them, many employees may jump ship.

Indeed, Tiger could shut down completely, daunted by the need to more than double their fund just to get back in the black. Melvin Capital Management recently closed after facing a long future with no juicy performance fees.

I expect to see Tiger’s losses grow as other funds attack its positions. However, a sudden, major run-up in tech stocks could save them at the last minute.

One thing I do know: I’m glad I don’t have any money in Tiger.

What do you think lies ahead for Tiger? And what hedge fund will be next?

Leave a comment at the bottom and let me know!

More on markets:

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Citadel Adds Millions to AMC Options Bet

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Misfits Market

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Use this link to sign up and you’ll save $15 on your first order. 

Photo: Tiger Global CEO Chase Coleman

Why Tech Stocks Are Oversold

It’s no secret that tech stocks have gotten kicked in the face in the last 6 months. The NASDAQ index of tech stocks is down 26% since November:

I’m convinced that public tech stocks are oversold right now. That’s been my gut feeling for at least a month, but today I came across some fascinating statistics.

Sequoia Capital, the best venture capital firm in history, released some stunning figures in a recent presentation to its founders:

– “61% of all software, internet and fintech companies are trading below pre-pandemic 2020 prices”

– “That’s despite many of these companies more than doubling both revenue and profitability”

– “⅓ are trading below COVID lows, when uncertainty and fear was peaking”

“- Growth-adjusted multiples [valuation divided by revenue] have fallen even further and are well below the 10-year average and pushing the 10-year lows”


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If a company doubles its revenue and profits but actually trades for less money than before, that is a bargain! If you liked it at $100 a share and $10 a share in earnings, for example, you have to love it at $75 a share and $20 in earnings!

But what about interest rates?

The NASDAQ is actually cheaper now than it was when the federal funds rate hit its recent peak in July 2019. At that time, the NASDAQ had a PE ratio of around 30 with the federal funds rate at 2.4%.

The current federal funds rate is a paltry 0.33%. Even if you look at rate expectations, they’re only around 2.8%.

Meanwhile, today’s NASDAQ PE is just 22.

And don’t forget, the Fed may not raise rates as much as expected.

Companies are laying off workers, the economy is on the edge of recession, a war is raging in Europe and COVID may return in the fall. There are many potential reasons why the Fed could back off.

Could tech stocks fall further? Absolutely.

But with every company and household pulling back at once, I think inflation will begin to moderate soon. And if it does, the Fed has a lot less reason to raise rates further, putting more pressure on tech stocks.

Fundamentally, here’s the question you have to ask yourself:

“Do I think the value of technology companies will be greater in 20 years or less in 20 years? Will they have more innovative products and paying customers, or fewer?”

The answer is obvious. Technology has transformed every industry and will continue to do so, resulting in massive profits.

And I want to be there when it happens.

What do you think is ahead for tech stocks? Leave a comment at the bottom and let me know!

More on markets:

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Credit Suisse May Need Up to $1 Billion After Huge Losses

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If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “Nasdaq Take 4” by bfishadow is licensed under CC BY 2.0.