Posted by: Audrey Erbes | October 14, 2008

Venture Capital Firm Shares Insights In Face of Financial Downturn

Our economy has been through down cycles historically, in fact, about every 10 years in recent history–early 1980s, early 1990s and early years in current decade. As I understand it and it may be oversimplified–this one is different as result of active control of inflation with varying of interest rates but  with accompanying decline in the regulation of the use of that “easy money.” Paul Krugman, just announced sole Nobel Prize winner in economics, had been warning the Administration of the risk of this loosening up of “ground rules” for the financial markets when the interest rates are low but his advice was not heeded.
I have pasted in the link for an informative presentation by Sequoia Venture Capital sent to the CEOs of their companies last Friday that crossed my desk this morning. You will need to register but it’s free.
The slides provide some graphic explanation of what happened and provide advice for companies on how to survive the anticipated long recovery. The economy is ever more complex and difficult to understand for the majority of us and our elected officials, especially, with the globalization of financial transactions. I found that the slides provide clear visuals describing how the U.S. economy got into trouble in way that a novice economist like myself could understand. Some additional culprits identified were declining individual saving rates, increasing individual expenditures via credit cards and home equity loans, and massive changes in qualifications for  home mortgages. Unfortunately, Americans forgot the old Depression adage that “there’s no such thing as a free lunch” and on a massive scale.
Despite the differences in this downturn vs. earlier downturns mentioned above, the impact is the same for companies facing the recession going forward. The bottom line is if a company doesn’t have 12 months of cash and was depending on an “open IPO window,” their business is in trouble. See what advice is provided. It may help you better read the “tea leaves” on our industry and at your company and adjust your expectations and behavior accordingly.

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