With every cloud comes a silver lining…right!
I am glad I am not alone in this thinking and this week a friend and my US lawyer John Montgomery sent me and others in his circle an uplifting memo that I thought I would post here.
In summary, we learned well from the last downturn and the VC community is responding well – well in this case means getting back to basics, working with portfolio companies to reset expectations, preserve cash and not carrying “dead wood” that prevents fresh capital getting to early stage companies.
Here’s what John says in his uplifting memo:
The Venture Capital ecosystem has reacted swiftly and decisively to the current economic downturn. The alacrity of the collective response bodes well for the ecosystem, especially for early stage companies. With the right perspective, down markets provide tremendous opportunities, and, as Benchmark highlighted at the end of its memo to its portfolio companies, the best companies get built in down markets.
We are bullish and confident that many great companies will emerge from this recession as well.
This downturn is very different from the last one, which was like a slow motion train wreck. The NASDAQ peaked in April of 2000 and began a slow decline. Everyone hoped that it was just an inventory correction that would only last for a quarter or two.
We here at the epicenter of the Internet bubble were all in denial that the party was over. It was way too much fun while it lasted. After it was over, we funded unviable businesses for far too long, keeping them on life support and thus denying capital to new businesses that were better recalibrated for leaner times.
This time, the VC community has done the entire ecosystem a favor by quickly telling its portfolio companies to go to their bunkers, focus on the essentials, preserve cash and cut burn. We have been very impressed with how quickly portfolio companies are responding. The missives from Sequoia, KPCB, Benchmark and Foundation have been particularly effective and have provided excellent thought leadership and guidance for the ecosystem.
The topics of the day at almost all of the board meetings we’ve been
attending recently are (i) immediately rightsizing headcount and (ii) redoing the 2009 budget and operating plan. Many of our clients have gone through this painful process already and will be done with implementation by Thanksgiving or 12/31/08 at the latest.
Read the rest of his memo attached as a PDF
Now you would be well advised to get a great lawyer like John who has his finger “on the pulse” of the VC community if you plan to raise any funds. In addition, John really believes in giving back to the community and runs regular useful meetings, seminars and opportunities to meet the investment community. learn more about his company here: www.montgomerylawgroup.com