Web 2.0 = Dead 2.0? The Financial Crises As An Extinction Event

Let's get this over with at the start.  I believe most Venture backed startups will not survive this crises.

First let's begin with some background.  A few days ago a presentation was 'leaked' from Sequoia Capital on the financial crises.  You can view that here (yes, this is the opening slide):

The summary?  This isn't like the dot-com crash or earlier slow downs.  This is systemic and it will last a long time.  

Here are some choice quotes from a recent Forbes Article:

Venture firms brace for cash crunch

"If you are not cash-flow positive you are in a tough spot right now"

"To the extent you haven't figured out your business model yet you are in trouble, because it's going to be hard to get another round," ... "You aren't going to get a second life this time."

So, why am I such an expert on this?

Well I saw this happen to a far smaller extent during the dot-com crash.  I've even heard the same sort of nonsense that I heard eight years ago.

"Web 2.0 and Silicon Valley is still in a bubble"

"Good ideas will still get funded"

"Mobile is growing, it won't slow down"

I'd advise EXTREME CAUTION here.  In hindsight the dot-com boom/bust looks almost insane but if you were in it, it seemed rational at the time.  The mind loves to rationalize events.  Come up with metrics that in hindsight look foolish.  Some choice ones:

"The valuation of a dot-com is the number of subscribers x $20" (this was for a free service)

"Forget revenue, the number of eyeballs is what matters"

So here's what will happen.

The "next round" ... maybe not.  Don't count on it.

The funding you are waiting on to get started?  Think of the wealth destroyed in the last few weeks.

I am so reminded of the summer of 2000.  People were still attending these events where you would network with potential investors.  I myself won a major venture event that summer, one that NPR covered.

The result was one investor who basically offered a small investment ($50k) backed by home equity.

THIS IS WORSE.

Now is the time to get cash flow positive.  Better to be one of the small mammals that survives than a large dinosaur who starves to death.

This isn't going away in a few months or a few years.