Sequoia Capital sees a prolonged market downturn and urges the startups in its portfolio to conserve cash

• Sequoia Capital sees a prolonged market downturn, according to a presentation obtained by The Information.
• The tech industry VC firm urged the startups in its portfolio to conserve cash.

Sequoia Capital sees a prolonged market downturn and is urging the startups in its portfolio to preserve cash, according to a presentation obtained by The Information.

The tech-focused venture capital fund, which has notoriously published grim market outlook notes in the past, sounded the alarm that current market conditions present a "crucible moment" in light of tighter monetary policy and high inflation.

Sequoia said it foresaw some of the present day market turmoil in 2020 — when it issued a memo titled "Coronavirus: the Black Swan of 2020" — but the monetary and fiscal stimulus that drove the earlier recovery "have been exhausted."

"Sustained inflation, and geopolitical conflicts further limit the ability for a quick-fix policy solution. As such, we do not believe that this is going to be another steep correction followed by an equally swift V-shaped recovery, like we saw at the outset of the pandemic," the note said.

As a result, Sequoia stressed the need for the companies in its portfolios to make difficult cuts to preserve liquidity and maintain options in the future.

In particular, the presentation urged companies to look at cutting projects, R&D, marketing, and other expenses. While they don't need to be cut now, companies should be ready to cut in the next 30 days.

"We expect the market downturn to impact consumer behaviour, labour markets, supply chains and more. It will be a longer recovery and while we can't predict how long, we can advise you on ways to prepare and get through to the other side," it said.