Billionaire VC Doug Leone Says Prolonged Downturn Worse than 2000 or 2008 is Coming

American venture capitalist Doug Leone believes that the current tech downturn is likely to continue for some time.

The Sequoia Capital partner warned that the current global economic downturn is worse than the recessions in 2000 and 2008.

Leone said that the situation today is more difficult and challenging than either the financial crisis of 2008 or the technology crisis of 2000. He was speaking onstage at the Slush startup conference in Helsinki.

We are facing a global crisis. Interest rates are rising around the world, consumers are running out of money, we have an energy crisis, and we are facing geopolitical challenges.

As interest rates rise and economic conditions deteriorate, tech leaders and investors are being forced to take a closer look at their businesses and strategies. Many are finding that their current plans are no longer feasible in this new environment, and they are scrambling to adapt. This is a challenging time for the tech industry, but also an opportunity for those who are able to adapt and innovate.

As central banks begin to raise interest rates and reverse the monetary easing measures put in place during the pandemic, high-growth tech stocks have been declining.

The Nasdaq Composite has been hit hard this year, down nearly 30% from its January highs. This is a sharper decline than what we've seen in the Dow Jones Industrial Average or S&P 500, which have both seen more modest pullbacks.

The recent economic downturn has had a ripple effect on privately-held companies, with businesses like Stripe and Klarna seeing their valuations drop. This is likely due to investors becoming more risk-averse in the current climate and putting their money into more stable companies.

Startup founders are warning their peers that it’s time to rein in costs and focus on fundamentals. This is in response to the current situation where many startups are struggling to stay afloat. By cutting costs and focusing on the basics, these founders hope to give their startups a better chance of success.

"In the last few years, any investment you made was rewarded due to the large amount of capital available," Leone said.

"In the old system, you were rewarded no matter what - you made a bad decision, you got money; you made a good decision, you got money. That's not a good way to learn your craft. All of that is gone."

"The lessons you're about to learn are some of the most important ones you'll ever learn, even in our business," he added.

Leone said that he does not believe that the valuations of tech companies will rebound until 2024 at the earliest.

Leone believes that the current situation is not going to improve quickly. He points to historical examples, such as the 16-year malaise in the 1970s, or the 10-year period following 2000 when many public companies failed to recover.

He said that we need to be prepared for a prolonged period where consumers will run out of money, demand will decrease, and tech companies' budgets will be cut.

According to Leone, seed-stage companies will be less affected by movements in the private markets than later-stage firms. This is because later-stage firms are more sensitive to movements in the public markets.