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The streets of Silicon Valley are running red this week. The latest startup to pare down is search engine SearchMe, a company with high-profile investors and a warchest of nearly $40 million.

It reduced its staff by two-thirds, says one source, although when I got a person from the company on the phone they said it wasn’t that bad. I’m still trying to confirm how severe the cuts actually were. [Update: The company says it was a 20 percent reduction.]

The Mountain View, Calif. company raised a $12.6 million round in May from Sequoia Capital, DAG Ventures, Deepfork Capital and Lehman Brothers Venture Capital.

Sequoia-backed companies appear to have been hit particularly hard this week, following an all-portfolio meeting at the firm’s headquarters in Menlo Park last week, where its partners gave a doom-and-gloom presentation and the need for immediate retrenching.

SearchMe is trying to compete against Google and other search engines in part through offering visually pleasing “coverflow” interface for viewing searches. Its founders include Silicon Valley veteran entrepreneur Randy Adams. Some background, from when I covered them earlier this year:

[C]hief executive and co-founder Randy Adams (LinkedIn profile here) has already founded and sold a number of successful companies including Emerald City Software, bought by Adobe Systems; the Internet Shopping Network, bought by the Home Shopping Network; Navitel Communications, bought by Spyglass, Inc.; and more. In fact, Sequoia owes him one — he helped introduce Sequoia to Yahoo, which led to the firm’s initial investment in the company.

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