First off, the incentivize structure for Sequoia is simple. They want to raise money, everything they do is based around raising more and more money.
So in 2008, when there was a chance of a depression, there were only 2 outcomes (the depression hits or no depression). If there was no depression no one cares about what you said in 2008 because everyone is making money so Sequoia can raise more money. If there is a depression Sequoia can refer back to this presentation and say, "Hey! We called it." and then they gain credibility and have an easier time raising money in a downturn.
I find it strange that the Sequoia presentation doesn't talk about energy prices and their effect on the economy. After all, the price of oil went triple digits in 2008.
Historically, there is a strong correlation between spikes in oil prices and recessions. In 2005 these guys were even wondering why a recession hadn't shown up yet - guess they spoke too soon: http://www.frbsf.org/publications/economics/letter/2005/el20...
Something about the availability of money for entrepreneurs feels like a bubble, but I suspect that it is not. I've been on both the receiving side and investing side since 1999 and the pace of change in terms of increased availability of money from angels is just weird. I suspect it is not a bubble though and rather it is the early stage of complete disruption of power in the investing community. And of course disruption = opportunity, so as angels we should be investing more right now, not less.
I suspect it is not a bubble though and rather it is the early stage of complete disruption of power in the investing community.
The thing is, every time there has been a bubble, one of the major arguments always presented is that well, this time it's different so the traditional measures don't apply.
In 1999 it was increased worker productivity (due to IT advances) that supposedly supported the outsized P/Es. That turned out to just be a smokescreen, of course.
It might even be argued that an excellent indicator of being in a bubble is the existence of arguments about why it's not a bubble even though it looks like one. That means you're at a stage where even the bullish market forces admit that traditional metrics do not support the increased valuations.
There's something of a bubble still to it. Low interest rates + continued quantitative easing = more cash and credit in the system.
But if we get the wave of mortgage, debt, and business defaults that the Fed and Treasury are trying to prevent, that angel cash bubble may feel the pinch too. They're still fighting it.
When there are no problems present, and you make predictions based on only the effect you see, it's easy for you to be tricked about the present circumstances. It's almost like saying that spring is here again because it's 65° in Brooklyn today... even though winter is right around the corner.
Or, perhaps more aptly in this case, it's like saying winter is here because it got cold for a week in April. Sequoia's infamous presentation always struck me as hyperbolic; "RIP good times", really? Forever? Long, long recovery? Anyone who is that certain of the future is probably got some hidden agenda. I don't know what Sequoia's was, but it was obvious that we shouldn't take it too seriously.
Maybe, but it still seems like a fairly valid point. The key is in Sequoia's msg being "strongly-worded", which it was. The presentation read like the author knew the future for certain and that it was all bad news. In all likelihood, some partner had worked himself up into a tizzy and then got all the others whipped up too. Cuts were not necessarily advisable; I think a call to arms may have been in order, but not the drastic acts of desperation that they were calling for.
No one knows anything: it's true. The more I claim that I'm sure of what's going to happen, the less you should believe me. That's this guy's point. Sequoia was full of it. Downturn? Sure. Downturn with a slow recovery and soup lines for a generation? Please.
First off, the incentivize structure for Sequoia is simple. They want to raise money, everything they do is based around raising more and more money.
So in 2008, when there was a chance of a depression, there were only 2 outcomes (the depression hits or no depression). If there was no depression no one cares about what you said in 2008 because everyone is making money so Sequoia can raise more money. If there is a depression Sequoia can refer back to this presentation and say, "Hey! We called it." and then they gain credibility and have an easier time raising money in a downturn.
It's a win-win for them.