Irony Alert: Bubble-Making Venture Capitalists Start Popping Them
Is it just me or does the sudden prospect of venture capitalists–the very investors who fueled the Web 2.0 valuation insanity with their typically egregious overfunding of start-ups–lecturing about the bleak economy and the need to tighten belts seem just a tad ironic?
It’s kind of like Washington politicians who handed out-of-control bankers one deregulation after another in exchange for campaign donations now mounting their high horses and decrying Wall Street greed in the current economic meltdown.
And yet, just like that, Silicon Valley’s investors–who could spin you all the way to next Sunday about how Facebook was actually worth $15 billion, despite not having much revenue quite yet–are turning into penny-pinching accountant types.
As reported by Om Malik of GigaOm in a piece titled “Sequoia Rings the Alarm Bell: Silicon Valley Is in Trouble,” for example, Sequoia Capital–one of tech’s most powerful and successful VC firms–held a meeting where it told its portfolio companies that the downturn was quite serious and advised them to start cutting costs.
Apparently, there was even a picture of a gravestone with “R.I.P.: Good Times” displayed at the gathering, in case the start-ups did not get the sledgehammer message. (And here is an update on the meeting by Malik.)
The last time Sequoia did this was when the Web 1.0 bubble was popping in 2000.
The same communication was also sent out to entrepreneurs by angel investor Ron Conway then, and now yesterday again.
The typically jovial Conway (pictured here) sent out a grim email to the start-ups he is invested in, advising they lower their burn rate to get ready for the tough times ahead.
Wrote Conway: “Unfortunately history DOES repeat itself but I hope we can learn from history and prevent the turmoil from occurring again. The message is simple. Raising capital will be much more difficult now … the name of the game in this environment in some respects is survival–survival until conditions change.”
Now he tells us!
In all seriousness, these kinds of prescriptions should have been front and center when times were presumably good, especially after the first orgy of Internet frothiness ended with such a thud.
Instead, the all-trees-grow-to-heaven attitude, the massively inappropriate valuations, the revenue-what-revenue strategies have been pushed on entrepreneurs in this cycle by too many VCs, most of whom should have known better.
And, while it is right for Sequoia and Conway to sound the alarm, I expect all the VCs who touted loudly will now climb aboard this somber bandwagon.
Because, after handing over too much money to start-ups like drunken sailors on shore leave, it is apparently now Sunday morning and time for a little salvation.
But not completely, of course, since this is still an industry where the dreams of hitting it big never die.
After I jokingly called Conway “Oh voice of doom and gloom” after reading his email, he quickly wrote back: “NO WAY DOOM AND GLOOM. I think innovation in the Valley will continue to thrive and I will continue to invest.”
Of course, Conway will. It wouldn’t be Silicon Valley if he didn’t.
And to raise your spirits from these wet-blanket VCs, here’s a video of Mike Settle singing the classic “What Shall We Do With the Drunken Sailor”: