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Sequoia warns startups: Coronavirus is 2020's 'black swan'

In an interview, Sequoia partner Alfred Lin says it's time for founders and CEOs to worry not just about the health of employees, but of entire companies.

Black swans in water

A black swan event is defined as one that can't be predicted and causes maximum damage.

Photo: Costfoto/Barcroft Media via Getty Images

Sequoia, one of Silicon Valley's top venture firms, issued a stark warning about coronavirus to entrepreneurs on Thursday: "We suggest you question every assumption about your business." Founders are listening.

In sounding the alarm, the firm called the coronavirus the "black swan" of 2020, referring to the idea popularized by Nassim Nicholas Taleb of a surprise event that causes a massive impact and is only rationalized in hindsight as something that could have been expected.

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Sequoia, which has backed companies like Google, Square and Airbnb, said it has already seen companies face slowing business growth and supply chain problems and cautioned that coronavirus could create an extended global downturn. It backs companies around the globe, from China to India to Israel, but sent the warning to U.S. portfolio companies first on Thursday, before posting it publicly.

"Many of our portfolio companies' founders and CEOs are getting prepared to try help with the health and safety of their employees, and we want them to also know they should focus on the health and safety of their companies," Sequoia partner Alfred Lin told Protocol.

That includes re-evaluating how much cash the startup is burning through and sales forecasts, and being ready for venture fundraising to "soften significantly." Sequoia even urged founders to reconsider their headcount and "evaluate critically whether you can do more with less and raise productivity," stopping just short of calling for layoffs.

"I think we've been in a boom market, and most of the contingency plans have been to figure out what to do on the upside: If we raise more money, what would we do? If we exceed our revenue targets, what else should we invest in?" Lin said. "Here it's a reminder that you should have contingency plans for the upside and the downside and we wanted people to make sure they have the downside scenarios in place."

It's a stark warning, but one that Sequoia-backed founder Dylan Field wasn't surprised to receive. "If you're part of the startup ecosystem, you can see the spread of the virus, and understand exponential math, then you can see it's going to be significant," he said.

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Coronavirus has been top of mind for Field and his business, Figma, which makes collaborative design software. So far, his business hasn't seen any dips in growth like Sequoia cautioned and it has millions in the bank after it raised $40 million from investors last year. "That honestly has been worrying us less. The health of the business hasn't been impacted yet," he said.

What has been worrying him is making sure his employees remain healthy. Figma has banned visitors to the office, told people to work from home if they need to and also switched all interviews to video. While Field hasn't down-scaled his hiring plans, he thinks it may be harder to reach their targets because of the video interviews and candidates not wanting to change roles in a period of instability.

It's not the first time Sequoia has forewarned startups. In 2008, the firm infamously created a presentation called "R.I.P. Good Times" that alerted entrepreneurs of a coming market downturn — the final slide telling startups to "get real or go home." This year's warning was notably absent of bad clip art and clocked in as one Medium post instead of a 50+ slide deck, but it did end up quoting Charles Darwin: "Those who survive 'are not the strongest or the most intelligent, but the most adaptable to change.'"

Sequoia's Lin said it's a different situation than the 2008 presentation, but it's still a message to founders to be prepared. "People should know it's about being prepared, not being alarmist," he said. "We wanted companies to think about these things proactively."

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To Modern Basket founder Hayley Leibson, who does not run a Sequoia-backed company, seeing the firm's memo was a good reminder that founders have to be able to navigate through uncertainty and do more with less if they need to. While much of Silicon Valley is focused on high-growth, money-burning companies, she said it may be time for the era of the cockroach company, or the ones who can survive anything, to return. "Founders right now should focus on being a cockroach and not a unicorn," she said.
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The video game industry is bracing for its Netflix and Spotify moment

Subscription gaming promises to upend gaming. The jury's out on whether that's a good thing.

It's not clear what might fall through the cracks if most of the biggest game studios transition away from selling individual games and instead embrace a mix of free-to-play and subscription bundling.

Image: Christopher T. Fong/Protocol

Subscription services are coming for the game industry, and the shift could shake up the largest and most lucrative entertainment sector in the world. These services started as small, closed offerings typically available on only a handful of hardware platforms. Now, they're expanding to mobile phones and smart TVs, and promising to radically change the economics of how games are funded, developed and distributed.

Of the biggest companies in gaming today, Amazon, Apple, Electronic Arts, Google, Microsoft, Nintendo, Nvidia, Sony and Ubisoft all operate some form of game subscription. Far and away the most ambitious of them is Microsoft's Xbox Game Pass, featuring more than 100 games for $9.99 a month and including even brand-new titles the day they release. As of January, Game Pass had more than 18 million subscribers, and Microsoft's aggressive investment in a subscription future has become a catalyst for an industrywide reckoning on the likelihood and viability of such a model becoming standard.

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Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.

Over the last year, financial institutions have experienced unprecedented demand from their customers for exposure to cryptocurrency, and we've seen an inflow of institutional dollars driving bitcoin and other cryptocurrencies to record prices. Some banks have already launched cryptocurrency programs, but many more are evaluating the market.

That's why we've created the Crypto Maturity Model: an iterative roadmap for cryptocurrency product rollout, enabling financial institutions to evaluate market opportunities while addressing compliance requirements.

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Caitlin Barnett, Chainanalysis
Caitlin’s legal and compliance experience encompasses both cryptocurrency and traditional finance. As Director of Regulation and Compliance at Chainalysis, she helps leading financial institutions strategize and build compliance programs in order to adopt cryptocurrencies and offer new products to their customers. In addition, Caitlin helps facilitate dialogue with regulators and the industry on key policy issues within the cryptocurrency industry.
Protocol | Policy

Lina Khan wants to hear from you

The new FTC chair is trying to get herself, and the sometimes timid tech-regulating agency she oversees, up to speed while she still can.

Lina Khan is trying to push the FTC to corral tech companies

Photo: Graeme Jennings/AFP via Getty Images

"When you're in D.C., it's very easy to lose connection with the very real issues that people are facing," said Lina Khan, the FTC's new chair.

Khan made her debut as chair before the press on Wednesday, showing up to a media event carrying an old maroon book from the agency's library and calling herself a "huge nerd" on FTC history. She launched into explaining how much she enjoys the open commission meetings she's pioneered since taking over in June. That's especially true of the marathon public comment sessions that have wrapped up each of the two meetings so far.

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Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Protocol | Fintech

Beyond Robinhood: Stock exchange rebates are under scrutiny too

Some critics have compared the way exchanges attract orders from customers to the payment for order flow system that has enriched retail brokers.

The New York Stock Exchange is now owned by the Intercontinental Exchange.

Photo: Aditya Vyas/Unsplash

As questions pile up about how powerful and little-known Wall Street entities rake in profits from stock trading, the exchanges that handle vast portions of everyday trading are being scrutinized for how they make money, too.

One mechanism in particular — exchange rebates, or payments from the exchanges for getting certain trades routed to them — has raised concerns with regulators and members of Congress.

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Tomio Geron

Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.

Protocol | Workplace

The Activision Blizzard lawsuit has opened the floodgates

An employee walkout, a tumbling stock price and damning new reports of misconduct.

Activision Blizzard is being sued for widespread sexism, harassment and discrimination.

Photo: Bloomberg/Getty Images

Activision Blizzard is in crisis mode. The World of Warcraft publisher was the subject of a shocking lawsuit filed by California's Department of Fair Employment and Housing last week over claims of widespread sexism, harassment and discrimination against female employees. The resulting fallout has only intensified by the day, culminating in a 500-person walkout at the headquarters of Blizzard Entertainment in Irvine on Wednesday.

The company's stock price has tumbled nearly 10% this week, and CEO Bobby Kotick acknowledged in a message to employees Tuesday that Activision Blizzard's initial response was "tone deaf." Meanwhile, there has been a continuous stream of new reports unearthing horrendous misconduct as more and more former and current employees speak out about the working conditions and alleged rampant misogyny at one of the video game industry's largest and most powerful employers.

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Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.
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