Investors warn tech founders and CEOs of economic downturn

31 May 2022

Image: © Jintana/

Inflation, geopolitical issues and poor markets have urged VCs such as Sequoia and Lightspeed to warn tech leaders to prepare for the worst.

Prominent Silicon Valley VC firms and start-up accelerators such as Sequoia, Lightspeed and Y Combinator have issued stark warnings to founders and leaders to brace themselves for an economic downturn in the tech industry.

Inflation, the war in Ukraine and poor market performance have all been cited as factors behind what Sequoia called a “crucible moment” in venture capital, as first reported by The Information.

The VC giant – which is famous for making early bets on Google, Apple and WhatsApp – issued its warning to tech founders in a recent 52-slide presentation called Adapting to Endure, reminiscent to its RIP Good Times presentation during the 2008 financial crash.

Sequoia hasn’t always been right in predicting the impact of downturns, however. In 2020, the VC firm presented another warning titled Coronavirus: The Black Swan of 2020, urging founders and CEOs to brace themselves for turbulence. Instead, many companies benefitted from a tech boom.

This time, however, Sequoia has urged founders not to expect a speedy economic recovery like the one during the pandemic because the monetary and fiscal policy tools that propelled that bounce-back “have been exhausted”, The Information reported.

“Don’t view [cuts] as a negative, but as a way to conserve cash and run faster,” it suggested.

Earlier this month, Lightspeed Venture Partners, another big VC firm that has backed companies including social platform Snap and crypto exchange FTX, wrote in a blogpost that the “boom times of the last decade are unambiguously over”.

Y Combinator, the tech accelerator that has helped Airbnb and Stripe find their feet, told founders in an email shared on Twitter that things “don’t look good” and that the safe move is “to plan for the worst”.

“If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your runway within the next 30 days.” The accelerator has also posted a video on how to save a start-up during an economic downturn.

The Nasdaq is down around 25pc from its all-time high in November, according to The Wall Street Journal, while Japan’s SoftBank Group recently reported a $26.2bn loss in its Vision Fund investment arm following plummeting valuations of portfolio tech companies.

These warnings come as several European tech unicorns have been laying off staff to cut costs. Last week, Swedish fintech Klarna said it will lay off 10pc of its employees, while grocery delivery start-up Gorillas said it was cutting its office workforce in half.

Bolt, the one-click checkout unicorn based in San Francisco, also plans to lay off about 250 people – roughly one-third of its workforce – according to Bloomberg. This comes just months after a $355m funding round gave the fintech an $11bn valuation.

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Vish Gain is a journalist with Silicon Republic