Venture capital firms warn of virus ‘black swan’ as investment slumps

Sequoia Capital partner Jessica Lee speaks during a TechCrunch Disrupt seminar. (AFP)
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Updated 07 March 2020

Venture capital firms warn of virus ‘black swan’ as investment slumps

  • Companies told to prepare urgent contingency plans in face of mounting worldwide disruption and investor alarm

SHANGHAI: Sequoia Capital, one of the world’s top venture capital firms, sent a note to the founders and CEOs of its companies on Friday describing the coronavirus as “the black swan of
2020” and urging them to brace for coming economic shocks.

The note, which it also published publicly, said the companies should consider cutting expenses, reexamine their spending plans, review their staff numbers, and prepare for a changing fundraising and sales environment.

Several venture capitalists who spoke to Reuters in recent days said they were already seeing a shift in the funding environment, with travel restrictions and quarantines disrupting crucial meetings and investors growing more cautious.

That is especially the case in Asia, where the virus crisis began in January: Venture capital investments in China are down 67 percent year to date versus last year, according to data from researcher Pitchbook.

“People are taking more time to look at things,” said Chua Kee Lock, CEO of Vertex Holdings, a subsidiary of Singapore state investor Temasek Holdings. For companies seeking funding, “instead of giving people 3-4 months, you may need to give more time, 5-6 months, depends on how long this lasts.”

The virus has hit the US tech world in dramatic fashion over the past week, with an outbreak near the tech hub of Seattle killing 10 people. Major companies including Amazon, Google and Facebook have canceled travel and urged some employees to work from home.

Sequoia also said some companies had already seen growth rates drop sharply between December and February, with several on track to miss first quarter targets due to the impact of the coronavirus.

“Having weathered every business downturn for nearly 50 years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances,” said the note, which was signed off by “Team Sequoia.”

“In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology. As Darwin surmised, those who survive ‘are not the strongest or the most intelligent, but the most adaptable to change.’”

Sequoia, an early investor in global tech behemoths such as Google Inc. and Apple Inc, has been known for its prescience in the past. In 2008 it sent a power point presentation to its founders titled “RIP Good Times” during the global financial crisis of that year which has since become part of Silicon Valley lore.

Paul Holland, a partner at Foundation Capital, noted that with 2008 being the last major crisis, “we have a whole generation of entrepreneurs who’ve never experienced anything like this before.”

Holland said that he was also warning portfolio companies to have contingency plans, “particularly any of our companies that have a physical element of their business.”

HIGHLIGHTS

• Sequoia tells its companies to brace for economic shocks.

• Venture capitalists say shifts in funding environment already taking place.

• Virus which started in China is spreading abroad.

“Any disaster or shock to public confidence distracts and worries people, including those with checkbooks, and this is no exception,” Matthew Ocko, co-founder of the Venture capital firm DCVC, said in an email. “Good startups will continue to be funded, but there may be delays and friction.”

In China, restrictions on movements are taking a big toll. “Working from home for investors has slowed down investment decisions because when they conduct due diligence, they need to go onto the streets to talk to consumers, or startups’ offices to have face-to-face talks with employees,” said Sun Jian, managing director at China Renaissance’s Huaxing Growth Capital Fund.

The coronavirus, first detected in China’s Hubei province in December, has killed more than 3,300 people globally. Reported cases of infection have topped 98,000 most of them in mainland China. But the number of new infections overseas now exceeds new cases in China, with Italy, South Korea and Iran, in particular, seeing worrying spreads of the virus.

In the US, new cases have emerged in California’s Silicon Valley and New York City in addition to Seattle, heightening concerns for tech firms. 


Libya’s NOC says production to rise as it seeks to revive oil industry

Updated 22 September 2020

Libya’s NOC says production to rise as it seeks to revive oil industry

  • Libya produced around 1.2 million bpd – over 1 percent of global production – before the blockade
  • Libya’s return to the oil market is sustainable

LONDON: Libya’s National Oil Company said it expected oil production to rise to 260,000 barrels per day (bpd) next week, as the OPEC member looks to revive its oil industry, crippled by a blockade since January.
Oil prices fell around 5 percent on Monday, partly due to the potential return of Libyan barrels to a market that’s already grappling with the prospect of collapsing demand from rising coronavirus cases.
Libya produced around 1.2 million bpd — over 1 percent of global production — before the blockade, which slashed the OPEC member’s output to around 100,000 bpd.
NOC, in a statement late on Monday, said it is preparing to resume exports from “secure ports” with oil tankers expected to begin arriving from Wednesday to load crude in storage over the next 72 hours.
As an initial step, exports are set to resume from the Marsa El Hariga and Brega oil terminals, it said.
The Marlin Shikoku tanker is making its way to Hariga where it is expected to load a cargo for trader Unipec, according to shipping data and traders.
Eastern Libyan commander Khalifa Haftar said last week his forces would lift their eight-month blockade of oil exports.
NOC insists it will only resume oil operations at facilities devoid of military presence.
Nearly a decade after rebel fighters backed by NATO air strikes overthrew dictator Muammar Qaddafi, Libya remains in chaos, with no central government.
The unrest has battered its oil industry, slashing production capacity down from 1.6 million bpd.
Goldman Sachs said Libya’s return should not derail the oil market’s recovery, with an upside risk to production likely to be offset by higher compliance with production cuts from other OPEC members.
“We see both logistical and political risks to a fast and sustainable increase in production,” the bank said. It expects a 400,000 bpd increase in Libyan production by December.
The Organization of the Petroleum Exporting Countries and allies led by Russia, are closely watching the Libya situation, waiting to see if this time Libya’s return to the oil market is sustainable, sources told Reuters.