Torkington's Law

Here are two presentations that I’ve found particularly instructive in the market meltdown:

  • Making Sense of the Mortgage Meltdown: many numbers, tables, and charts to help you see the full number of sigmas the last few years represent.
  • Sequoia Capital on Startups and the Economic Downturn: this is a presentation from VCs about how startups should deal with the new market conditions. In short: batten down the hatches.
  • Sequoia is right on the money in my opinion: lock down, there’s tough times a-coming. They say that if you don’t have a year’s cash in the bank, you’re in trouble. I can believe it. Their best advice is to become cashflow positive as soon as possible. Hmm, weren’t smart people saying this before? No, not just 37 Signals and our very own Marc Hedlund … oh right! Sequoia were saying it in 2001.

    I hereby reveal Torkington’s Law: when VCs no longer emphasize becoming cashflow positive as soon as possible, you’re officially in a bubble. You don’t thank me now, but just wait four years until there’s a new instrument that lets bankers manufacture money from thin air. When VCs smell silly money exits again, they’ll remove those “unnecessarily limiting” bits of advice from their presentations because “this is a new world” and “this new market makes greater growth possible, justifying any temporary debt”, and when they do you’ll recognize it for the convenient self-serving venal lie that it is and cry “Torkington’s Law! We’re in a bubble!”. The guy beside you in the soup kitchen line will look at you strangely, but ignore old Badger Pants Pete and rush out to start one of these new Web 3.0 companies all the kids are talking about so you can get some of that silly money for yourself. After all, the only reason to hate a boom is if you didn’t get in before it ended, right? Right?

    I think I need a bailout for my faith in human nature ….

  • Are you kidding? Really?!! Cash-flow positive?

    Every cycle, we have the same thing. Just batten down the hatches and focus. Inspiration comes from adversity. I look forward to the next set of successes.

  • Don’t diss Badger Pants Pete… he’s survived more downturns than any of you young whuppasnuppas.

  • People must have forgotten what they learned in kindergarten, 80% of all businesses fail in the first year and they fail due to lack of cash flow. In the meantime, VCs were just throwing money at start-ups … more money than start-ups actually needed. Now it’s the time for irrational over-correction.