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Sequoia warns startups of “turbulence” as coronavirus outbreak persists

Sequoia said that it will take time, “perhaps several quarters,” before the virus is completely contained.

Coronavirus general photo. Source: Shutterstock.

Silicon Valley venture capital firm Sequoia Capital urged its portfolio companies to brace for the negative business impact of COVID-19, which it dubs “the black swan of 2020.”

“We know the stress you are under and are here to help,” the company wrote Friday in a letter addressed to Sequoia founders and CEOs. “In the interim, we should brace ourselves for turbulence and have a prepared mindset for the scenarios that may play out.”

As of this writing, there are over 98,000 confirmed cases of COVID-19 globally and more than 3,300 deaths.

Sequoia said that many companies are facing challenges amid the outbreak, including a sharp decline in business activity. “Some companies have seen their growth rates drop sharply between December [2019] and February [2020]. Several companies that were on track are now at risk of missing their Q1 2020 plans as the effects of the virus ripple wider,” Sequoia said.

The lockdown in China has also affected the global supply chain. “Hardware, direct-to-consumer, and retailing companies may need to find alternative suppliers,” Sequoia suggests. Software businesses, however, while less exposed to supply chain disruptions, remain at risk, according to the company.

Sequoia said companies are also suffering from meeting cancellations as a result of travel bans in some international locations and firms discouraging non-essential travels.

The VC firm has backed tech giants like Airbnb and Apple. Just this week, Airbnb said it could push back its IPO plans in 2020 in light of the virus outbreak. Apple, meanwhile, is reportedly facing a shortage in stock of replacement iPhones.

Sequoia said that it will take time, “perhaps several quarters,” before the virus is completely contained. “It will take even longer for the global economy to recover its footing,” it added.

The firm said companies should consider every assumption about their business, including runway, fundraising, sales forecasts, marketing, team headcount, and capital spending.

“Nobody ever regrets making fast and decisive adjustments to changing circumstances,” Sequoia said as it shared a lesson from experiencing economic downturns in its 50 years of operation.

It also suggests that leadership in business plays an important role during difficult times. “A distinctive feature of enduring companies is the way their leaders react to moments like these.”

“As Darwin surmised, those who survive ‘are not the strongest or the most intelligent, but the most adaptable to change’,” the company said.

This article first appeared in Tech in Asia