Pitched Unfairly

Sequoia

Menlo Park · October 2008

The 56 slides that told a generation of founders to stop growing at any cost and start surviving.

R.I.P. Good Times

Cheap money, easy rounds, growth at any cost

Now what?

Three streets, one verdict: this is not a normal downturn.

  1. I Wall Street How did we get here? Eric Upin
  2. II Main Street Where are we now? Michael Beckwith
  3. III Your Street Where do we go from here? Doug Leone

I · Wall Street · How did we get here?

A century of flat home prices, then 8% a year.

1900 to 1929 -1.2%
1930 to 1997 +0.7%
1998 to 2006 8.0%
U.S. real home price index, change a year

II · Main Street · Where are we now?

The shopper became 73% of the economy, on credit.

Savings gone, wages flat, homes used as ATMs. Now the shopper is tapped out.

66% 1987 $4.7T GDP
73% 2007 $13.8T GDP

II · Main Street

The engine of the boom now runs in reverse.

Each step feeds the next. Nobody inside the loop can stop it alone.

Recession

01Mortgages reset higher02Delinquencies rise03Home prices fall04Home equity loans dry up05Spending falls06Jobs disappear

III · Your Street · Where do we go from here?

2001 was a stock crash. This one is credit.

20012008
What broke Tech stocks Credit, housing, the banks
How far it reached Mostly tech Global, every sector
Who stopped buying IT budgets Consumers, then everyone
How it ends An eight-month recession Slowly. A V is unlikely.

III · Your Street · New realities

Easy money is gone. So is the old plan.

  • $15M at a $100M post Gone
  • Big Series B and C rounds Smaller, and harder to win
  • Customers sign this quarter Slower to buy, if at all
  • Sell the company if it stalls Fewer buyers, lower prices
  • IPO when you are ready Fewer IPOs, and later

III · Your Street · Cash is king

Cut now, and make the cash last until you turn a profit.

Revenue: $300K a month, growing 3% a month

21 months of runway
at today's burn

You survive. Cash-flow positive by Feb 2011, with $2.0M left.

III · Your Street · Ops review

Slash expenses. Cut deep.

$900K $675K a month · illustrative plan
BeforeAfter cuts
Engineering Product ready? Fewer engineers. 330 245
Sales and BD Lower base pay, more upside. 210 185
Marketing Cut what is not working. 150 70
G&A Budget from zero. 120 100
Product Only what customers pay for. 90 75

III · Your Street · Choices

Survival goes to the quickest.

  • Plan B · Cut 25% this monthLowest point $2.0M. Profitable in early 2011.
  • Plan A · Trim 15% next springOut of cash by mid 2010.

Illustrative company: $8M cash, $900K a month

Oct 2008Oct 2009Oct 2010Oct 2011

Sequoia · October 2008

Get real or go home.

  • Cut now, cut deep
  • Get to cash-flow positive
  • Keep a year of cash
  • Spend every dollar like your last