(Bloomberg) — The ongoing tech downturn has caused late-stage venture capital funds to pull back activity as risks to the economy mount, according to a senior executive at Sequoia Capital.
Venture capital funds have gone from telling portfolio companies “run, run, run” to “stop, stop, stop,” said Sequoia Capital Managing Partner Doug Leone in an interview. With “prices sticking downwards,” there are “fewer investors and fewer founders as typical in a down-market cycle,” he said.
Market turmoil has rocked the confidence of tech investors over the past few months. Instacart Inc., the grocery delivery startup that soared during the pandemic and backed by Sequoia, cut its valuation by nearly 40% to align with the state of the economy. Oyo, the high-profile affordable lodging startup that filed for an initial public offering last year, is considering slashing its fundraising target by half.
Technology shares have whipsawed over the past few months as economies began lifting remaining restrictions and as central banks have started increasing borrowing costs, potentially crimping demand for riskier assets. The Nasdaq 100 fell as much as 20% this year before halving those losses in recent weeks.
It would be “foolish” to think that the downturn in public markets will be capped at a few months given the current economic environment and the historically long bull run that came beforehand, said Leone. Rising inflation, a falling rate of savings and a shortage of labor point to a “negative economic condition.”
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Despite the recent downturn, Sequoia has led a $60 million funding round in Cyera, an Israeli cyber security startup that helps companies such as Takeda Pharmaceutical Co. protect their data stored in cloud servers. Other investors include Accel and Cyberstarts. Leone joined Cyera’s board and expects to remain there for at least a decade, he said.
“Security is going to continue to be a market opportunity for the next 30 years,” Leone said. “A lot of companies don’t even know what data they have or where it’s located. And then they have to secure it.”
(Updates with board detail in the penultimate paragraph. A previous version was corrected to remove an inaccurate reference to investor sentiment in the headline and first paragraph.)
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