Tom Cole has invested in early stage Internet and software companies with
PE Week Senior Writer Alexander Haislip recently caught up with Cole to talk shop and hear his thoughts on how the recession is affecting VC firms.
Q: What was your take on the recent Sequoia Capital “RIP: Good Times” meeting?
What they did was appropriate, but at the same time there was a bit of an alarmist edge to what they said. It’s an interesting contrast compared to the downturn of 2000, where a lot of people got caught off guard and made cuts too slowly.
Q: How have you communicated with your executives about the downturn?
Stylistically, we didn’t send out a missive or have an all hands meeting, but we wove it into our discussions with CEOs. Because it was so recent when we had that terrible downturn, it’s still fresh in everybody’s mind. Maybe it’s because of the 2000 downturn, but CEOs are very mindful of it. By the time we pinged most of them, they had plans to cut expenses.
Q: Sounds like your executives were out in front of this already. Is that because there are more people with gray hair running companies these days?
I wouldn’t equate this to gray hair. We have some CEOs who are wise beyond their years. Just about everybody has been connected to some terrible flameout story in their past, so the scars are still very fresh.
Q: So what are you telling them?
Our message is, ‘Don’t panic. But do be mindful of your financial plan.’ There are always many inputs in to how you run a business. The economy is one aspect of running a business. We want people to invest for growth, but do it in a mindful way. They can’t go crazy and run high burn rates, but at the same time they can’t ratchet down to the point where they’re not growing at all.
Q: Are you going to cut off life support to any of your portfolio companies?
In general, a bad economy doesn’t suddenly make good ideas bad ones. The fundamental thesis we had when we invested in companies is still sound. We still have a lot of confidence in the companies we have and are supporting them. We feel like this is the best time to invest not just in startups, but in our own organization.
We have been trying to ramp up our executive-in-residence program over the last few months to help identify new opportunities.