Sequoia Capital believes the coronavirus could lead to reduced business activity, supply chain disruption and other long-lasting problems.

Sequoia Capital, a powerful Silicon Valley venture capital fund that has backed companies such as Trulia and Airbnb, on Thursday warned industry leaders that they should brace for “turbulence” and a slow recovery from the chaos of the coronavirus.

The firm laid out its dire coronavirus outlook in a memo posted Thursday to Medium. The memo —which is addressed to and was first shared with leaders of companies Sequoia has invested in — calls coronavirus “the black swan of 2020.” It goes on to say that the virus may lead to a drop in business activity, supply chain disruptions, softening demand and curtailed travel among other things.

Worse still, Sequoia argues in the memo, it could take several quarters before the virus is contained and “even longer for the global economy to recover its footing.” The firm additionally believes that monetary policy such as cutting interest rates — something that happened earlier this week — “may prove a blunt tool in alleviating the economic ramifications of a global health crisis.”

People wear protective face masks Wednesday in Manchester, United Kingdom. Credit: Christopher Furlong and Getty Images

Sequoia goes on in the memo to urge company leaders to create a “cash runway” that will allow them to survive hard times, as well as to prepare for a weaker fundraising landscape and lower sales. Business leaders should also be flexible and avoid “false optimism.”

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

The memo further references the 2008 financial crash. And while it doesn’t say the economy is about to collapse now, the ultimate message is that business leaders should prepare for hard times.

That dire warning adds to the ever-growing list of bad news the coronavirus has caused. After first being detected late last year in Wuhan, China, the illness has now infected more than 95,000 people worldwide. The global death toll stands at nearly 3,300.

As of Thursday, there had been 210 cases in the U.S.

The same day that Sequoia offered its warning about the virus’s impact, the National Association of Realtors canceled two upcoming conferences in California. Various real estate companies have issued travel advisories for their employees, and earlier this week Realogy said it would attempt to move three different gatherings online in response to the virus.

Perhaps bearing out Sequoia’s thesis, the virus has also sent financial markets tumbling. The latest plunge happened Thursday, with all major indexes down.

Passengers wear masks on a Myanmar National Airlines Wednesday. Credit: Paula Bronstein and Getty Images

Sequoia’s investments are vast and diverse, but some of the highest profile companies in its portfolio are likely among those most impacted by the spread of the virus. The firm has invested, for example, in Airbnb, which relies on business from travelers. But the virus has slammed the tourism industry, with both airlines and hotels reporting reduced bookings.

Other real estate-related companies that Sequoia has invested in include Trulia, Houzz and home maintenance startup Setter.

In its memo Thursday, the venture firm ultimately advises business leaders to  “stay healthy, keep your company healthy, and put a dent in the world.”

“We should brace ourselves for turbulence and have a prepared mindset for the scenarios that may play out,” the memo also argues.

Correction: As of Thursday, there had been 210 cases of coronavirus in the U.S., resulting in 12 deaths. This post originally misreported those numbers. 

Email Jim Dalrymple II

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