There’s a lot of doomsday talk these days in Silicon Valley. The end is near. The sky is falling. Or, as venture capitalist Chi-Hua Chien of Goodwater Capital recently quipped to me, “Pull out your raincoats or build a bomb shelter while there is still time.”
As tech stocks have slid on the public markets and private company valuations have gotten slashed (often quite publicly), many VCs have been advising their portfolio companies to fasten their seat belts for a bumpy ride. Heidi Roizen, operating partner at Draper Fisher Jurvetson, penned a blog post Dear Startups: Here’s How to Stay Alive. As the days of easy capital come to an end, Roizen urged entrepreneurs to take sensible measures like “Get to cash-flow positive on the capital you already have (aka, survive)” and to “Cut more than you think is needed.”
Aileen Lee, founder and partner at Cowboy Ventures, told me recently that “Nearly every investor is talking to their companies about how to weather the downturn.” She explained that she had sent two emails of warning to her portfolio companies: one in October and one in January. According to Lee one of her entrepreneurs said to her, “I remember reading your email from October and thinking it was a warning, but the one in January made me realize it’s coming.”
More recently, First Round Capital sent a letter to its limited partners warning them of a possible correction underway, as reported by Fortune. While First Round in its letter declined to call the top of the market, the firm warned that the current climate of investment slowdown, down rounds and falling valuations would not be temporary. (A copy of the letter is below.)
Aside from its willingness to embrace the current headwinds, First Round’s letter is also notable for a brilliant comparison to the Oscar nominated movie, The Martian starring Matt Damon:
We recently attended a board meeting of a First Round company that is experiencing strong growth (while burning a lot of cash). During the meeting, there was a conversation about the rapidly changing funding landscape. And one of the company’s (bullish) later stage investors warned the founder that the company should no longer rely on additional follow-on financing, saying, “We need to act like we’re Mark Watney in the Martian. We can’t assume we will get a shipment of new potatoes to save us.”
While Roizen’s blog post didn’t mention growing potatoes on Mars, she wrote, “Fortunately, (unfortunately?) I’ve been to this movie before, during the dot-com “nuclear winter” – anyone remember that?”
First Round’s movie comparison may prove to be more on point than anyone imagined.