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Fun bedtime story: the systemic shock of this downturn causes investors to do what they are naturally prone to do, which is become fearful. Money dries up for t

by timr 11y ago

Fun bedtime story: the systemic shock of this downturn causes investors to do what they are naturally prone to do, which is become fearful. Money dries up for the most speculative investments first, which removes the flow of dumb money from late-stage unicorn rounds. Unable to raise further "growth capital" at attractive valuations, and burning money like there's no tomorrow, we see the first unicorn layoffs within 3 months. This spooks investors further, which dries up whatever funding was left for early stage deals. Within 6 months, the weakest startups are beginning to fail outright, which pulls back the tide a bit, and reveals the ponzi scheme of startup-servicing-startup revenue cycles for what they are. Suddenly, a number of heretofore assumed "safe" investments with "strong" revenues are revealed to be precarious, as 95% of their revenue streams were correlated. Companies go from healthy revenue to practically nothing overnight, as dozens of companies all cut back on burn simultaneously. This only exacerbates the cash flow problems, and startups that were flying high are now flying into the ground at remarkable speed. Market gurus are revealed to be wearing no pants. Within a year, the valley is in full recession, and people are clamoring for U-Hauls out of San Francisco, which are in short supply... (In case you were wondering, this is essentially what happened in 1999, minus a few wild-cards like companies with totally fictional revenue, and companies that had no revenue at all.)

cm2187 11y ago
I wonder what jet.com is worth now
- adventured 11y ago
  Well if you want a prediction for a company that's going to take a huge hit in this downturn: Tesla They're going to deploy the Model X into a temporarily contracting electric car market, with China upside down, and with the US upper class pulling back spending due to a big drop in asset values. The gigafactory will cost vast sums yet to finish and get functional, and then it'll hit the market with weak demand for several years at least. Meanwhile Tesla's growth on the Model S, which has already stalled out, will get hammered further, pushing their already high quarterly losses even higher - all at time when raising more capital is going to be painful. Any company that needs a lot of financing to do what they do, is going to get hurt bad through this storm.
  - aleh 11y ago
    If Tesla finds itself in position to need more capital, factories are better collateral than domain name and brand equity.
blackguardx 11y ago
I think we are in for a tech market correction at some point but I hope it isn't as drastic as the one you paint! Everyone seems so starry eyed in the Bay Area but few seem to remember 2008-2009 when even Google was laying people off. I remember going from being unhappy in my job to being thankful for having one in the span of a few months when pretty much all job postings dried up.
- timr 11y ago
  Likewise. I moved to SF right before Lehman, to work at a startup. I had next to no money in the bank when I moved here, and an outrageous rent to pay. It was (financially) terrifying -- but at least it cut back on the douchebaggery in the city! That said, 2009 wasn't a tech-specific downturn. New York had it far worse than us, and there were still tech companies doing their thing in SF, albeit on a much tighter budget, since the money wasn't flowing. The dot-com crash (which is essentially what I am describing) had its epicenter in SOMA, and we're a lot closer to that scenario than we are to Lehman -- outside of exports (oops, spoke too soon!) and shale oil/gas (oops, spoke too soon!), tech is the primary bright spot in our economy right now. The dumb money is flooding into tech instead of real estate this time, which means that when it does go away, the hangover is going to be pretty wicked.
  - marincounty 11y ago
    "It was (financially) terrifying -- but at least it cut back on the douchebaggery in the city!" Don't get it? Personally, I can't find anything positive about spending so much of one's income on rent? If it's crime, my car is still broken into like its 1999?
  - go1979 11y ago
    I got a new job in SV in 2008 as well. People were congratulating me that I managed to get "an" offer. Lots of places had hiring freezes back then. When did things change in the valley? Was it Q4 2010? Q1 2011? I'm genuinely curious and trying to refresh my memory. I feel like I was in a funk and then woke up one day with all this Unicorn talk. Today, housing prices in MV "seem to be" 100% more than what they were in 2010. What the heck happened? Does "Unicorns" explain all of that? Forign investors? Ultra low interest rates??
mavdi 11y ago
Glad I paid off the mortgage.
- dvirsky 11y ago
  Lucky me, I don't even have a mortgage to pay! Oh well, I guess my family could always move into my mom's spare room.
danieltillett 11y ago
Yes watch the unicorns. It is the private equity market that will be the place that breaks first. If this dries up then things will go down hill quickly. I actually think this will be good for the VC industry. Valuations will come back to something based on a universe that is possible and with long term investor (all those locked up limited partners) they can invest with thoughtfulness. It won’t be pretty for the angel investors though.
w1ntermute 11y ago
Many unicorn valuations have already taken a hit: https://www.theinformation.com/articles/mutual-funds-show-markdowns-on-private-stocks https://www.theinformation.com/articles/mutual-funds-show-ma... MongoDB and Gilt Groupe (both of which happen to have been cofounded by ex-DoubleClick CEO Kevin Ryan: https://en.wikipedia.org/wiki/Kevin_P._Ryan https://en.wikipedia.org/wiki/Kevin_P._Ryan) are specifically called out.
- timr 11y ago
  It isn't all bad, of course. Hastening the removal of MongoDB from our lives is my kind of silver lining.
  - w1ntermute 11y ago
    Given that it's AGPLed, it unfortunately doesn't look like MongoDB (the joke of a DB) will be going away any time soon, even if MongoDB Inc. (the joke of a company) does. What I'm not looking forward to is a culling of all the on-demand apps available in the Bay Area (https://www.theinformation.com/investors-asking-tough-questions-of-on-demand-apps https://www.theinformation.com/investors-asking-tough-questi...) - I've really enjoyed subsidizing convenience with VC/PE cash.
    - _pmf_ 11y ago
      > MongoDB Inc. (the joke of a company) I don't know; selling support contracts for a product that requires a lot of support is a pretty solid business model. SAP comes to mind.
    - pjc50 11y ago
      Speaking of on-demand apps, http://ftalphaville.ft.com/2015/08/19/2137749/china-uber-but-for-countries/ http://ftalphaville.ft.com/2015/08/19/2137749/china-uber-but... (especially the snarky table of comparisons)
    - puranjay 11y ago
      Except for Uber and a handful of other services, I really don't think the other 'on-demand' businesses are scaleable.
dvirsky 11y ago
One major difference is that large parts of the internet are economically viable, and not just driven by money pumped in by VCs and IPOs. Back in 2000, there was little real consumer money going into the web's money cycle. Google didn't even have Adwords back then! Of course there's still a large chunk of revenue today that is just recycling VC money - e.g. apps advertising in other apps, or AWS which is a huge sink of VC money from other startups. But there is a lot more "end user" money coming in from real people and companies that purchase products and services online. Even if that flow stops, the internet today is less of a ponzi scheme as a whole.
- timr 11y ago
  You're right that there's more legitimate internet revenue than in 2000. But most of that is going to a few established players that are decidedly post-unicorn in nature. I don't think Google is going anywhere (though Twitter might just get its fatal wound; that would be a particularly symmetrical ending, wouldn't it? Company born of the ashes of dot-com 1.0 dies in the explosion of dot-com 2.0. But, I digress.) From what I know, most of the "unicorns" are neither profitable nor particularly modest with their spending. They are vulnerable to any sort of turn in investor sentiment, even if their revenue streams are real.
  - dvirsky 11y ago
    Yeah, of course, there's a real valuation bubble going on. I don't think we'll see twitter going anywhere, too - it's a good product after all. But maybe returning to its real size in terms of worth, number of employees and spending.
  - somberi 11y ago
    I find this article thoughtful: http://www.economist.com/news/briefing/21659722-tech-boom-may-get-bumpy-it-will-not-end-repeat-dotcom-crash-fly http://www.economist.com/news/briefing/21659722-tech-boom-ma... The key is that allegedly "overvalued" companies (like Uber say)are still under private investment which has a larger appetite for risk. Whereas in the last boom, most of the speculation were fueled by publicly traded tech stocks. Edit: Grammar.
pjc50 11y ago
Systemic shock is likely to be lower than you'd expect, as the Chinese stock market is on the other side of capital controls to the west and so therefore less linked. I do agree that there's a lot of 1999-like companies around, especially people wanting to do Webvan 2.0.
- toyg 11y ago
  The feared impact is a systemic Asian downturn crashing industrial export towards the area, which in turn would reduce demand for services. Germany in particular is currently being watched, since their industry relies on export towards Asia quite heavily these days (since European demand is overall low). If German giants start feeling the pinch, the startup world in Berlin will inevitably get hit. From a US perspective I honestly don't know. Chinese investments are mostly one-way anyway (it's hard to take money out of China) so they shouldn't significantly impact any honest balance sheet; however, if Japan and Singapore start going under as well, things might turn ugly all around.
BadassFractal 11y ago
Very exciting time for companies with good reserves. Can't wait for more engineers to start looking for jobs and the ability to lower salaries.
- deciplex 11y ago
  Which company do you belong to?
  - _nedR 11y ago
    The correct question is : Which company belongs to him?
    - deciplex 11y ago
      Yeah, whichever - point being he should let us know where not to send our CVs.
- jazzyk 11y ago
  You forgot your signature: Mark Zuckerberg :-)
joezydeco 11y ago
Where's Pud when we need him the most? Bring back fucked fuckedcompany.com!
danmaz74 11y ago
The scenario you paint is far from sure but possible; but why are you using to comment a crash on the Chinese stock? I hardly see a correlation. There could even be a negative correlation, if more investor money flows back from Asia to the West.
- deleted 11y ago
  [deleted]
blazespin 11y ago
Not quite right. Interest rates play a larger role all this, which compared to 2000 are at historical lows. The fed might even cut, now. Negative real rates will spur speculative investments.
DanielBMarkham 11y ago
And small, self-funded, nimble startups outside the valley eat the lunch of overstaffed and overfunded startups with high leverage and a gun to their head. I don't think we're due another cycle yet, but every cycle just decreases the amount of money you actually need to make a go of it. Sometime over the next 5-10 years another bust would probably be an overall good thing.
mcv 11y ago
So the smart investment is in U-Haul right now?
- david927 11y ago
  No, the smart investment is in "cash" right now.
  - go1979 11y ago
    I sat on cash since 2008 and don't feel particularly smart.
    - rubiquity 11y ago
      What is 8 + 8 + 8 + 8 + 8 + 8 - 48?
    - _nedR 11y ago
      I don't think this is a bad time to revisit an old chinese proverb : https://sivers.org/horses https://sivers.org/horses
- abledon 11y ago
  Exciting new SV market : U-Haul startups tag-line: "Location based, real-time, mass-aggregator content manipulation"
- pinaceae 11y ago
  no, the smart thing is to quickly create a startup, uber for uhaul. slick app, shows all available trailer and trucks, you order and they appear in minutes, all transactions done through app. there, go get rich (or not).
- eigenvalue 11y ago
  I know this is supposed to be facetious, but UHAL stock is actually quite attractive at current levels. They own a growing self-storage business but don't break out the profit contribution (although they do disclose the revenue contribution). Pure-play self-storage stocks like EXR/SSS/PSA trade for 18-20x 2016 TEV/EBITDA. If you give UHAL credit for that on the estimated earnings from the self-storage business, you are getting the moving business for a very undemanding valuation despite it growing 5-6% per year and with a dominant market position.
sho 11y ago
Something of a tangent to what you said, but I see other parallels between current events and 1999 - this is what happens when unsophisticated investors gain sharemarket access for the first time. It happened in the late 90s in the states (remember those "trading poolside" etrade ads?); it's happening now in China. Only recently you've been able to actively trade and view your portfolio on smartphone apps; it became a kind of game and more and more people piled in. I know people there who were up tens of thousands in paper gains even a month ago and could not be convinced they were basically gambling. Well, they're convinced now :-P I suppose this is the way people learn...
- admyral 11y ago
  Are you really blaming financial instability on "unsophisticated investors"? Not on automated, high speed traders able to liquidate stocks and topple markets in seconds? Not on reckless, fear-mongering media outlets competing for the most sensationalist headline? Not on government action/inaction affecting trillions in assets?
netcan 11y ago
I think taking 1999 as a general example is a bad idea. The mechanics of how the bubble popped is not really interesting. It could have popped any number of ways. What happened in the 90s was this. People realized the internet was a huge deal. World changing, re-writing the rules of the economy, among other major human institutions (learning, governance, etc.) They were right. 20 years later a lot has changed because of the internet. Revolutions have been driven by it. Economic titans have been created by it. A large chunk of the blue chip economy is now made up of internet and internet compliment companies, even Apple & MSFT are in that category. Google, Alibaba. The new blue chips being generated today are internet companies and I'll wager the blue chips generated in 2030 will also be driven by this. The investors of 1997 were not wrong about the scale of the revolution. What they were wrong about was the importance of early mover advantages. It's as if they expected the internet economy to be built behind walls constructed in their entirety by 2000. They thought they were buying shares in Google, Facebook, Alibaba & Uber, that these companies were all being founded between 95 and 98. Seems silly now. But, hindsight. The really large scale irrational exuberance lasted a short while, just 2-3 years maybe less. That's hard to justify but it's the end of a bubble when bubble thinking is totally disconnected with the rules outside the bubble. In that environment, it doesn't matter what bursts the bubble, it's going to burst. Without that kind of bubble, you don't get that kind of burst. With that kind of bubble, you inevitably get that kind of burst. Investor sentiment may be fickle, but U-haul traffic jams are caused by real economics, not panicky investors. So, who are these unicorns? Can they survive a month or twenty of panicky investors? Can they do away with investors all together? Are they reliant on investor money for revenues like all the ad selling startups of 1999? Here they are: http://graphics.wsj.com/billion-dollar-club/ http://graphics.wsj.com/billion-dollar-club/ I think no matter what investors do tomorrow morning, Uber, Xiomi, AirBnB and Palantir will still pay salaries, bonuses and such. The IPO might be put off by a couple of years. If the market goes extremely nasty a lot of people who expect to buy houses with stock options will be disappointed. That might cause trouble. U-Hauls? I don't see it.
- Marazan 11y ago
  Uber is burning through cash, without fresh investment they cannot keep going on their current course.
nitrogen 11y ago
It's important to remember that companies and programmers at the top of their games can still thrive in a down economy. There will always be software to write, especially in economic sectors that aren't directly wired to startups. Take ecommerce for example, which depends on income from the whole population. The whole population never recovered from the last market downturm, yet people still need to buy stuff, and increasingly do so using apps and the web. I just hope urban real estate doesn't go even more berserk with investors looking to park otherwise uninvestable money.
- marincounty 11y ago
  "I just hope urban real estate doesn't go even more berserk with investors looking to park otherwise uninvestable money." I fear this too, and I have benefitted greatly from this realestate bubble. My two hopes are: The Fed doesn't chicken out, and starts to raise interest rates. Plus, I would like to see an immediate end to foreigners buying realestate without becoming citizens first! At least residential? Right now they can pick up a phone, and buy any home.
- spb 11y ago
  > The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies. > When Microsoft and Apple were founded. http://paulgraham.com/badeconomy.html http://paulgraham.com/badeconomy.html
bottled_poe 11y ago
I think the fact that this is the top comment says a lot about the general sentiment of people working in the tech sector.
- bpodgursky 11y ago
  HN is not really tech worker dominated anymore.
- danieltillett 11y ago
  Yes. The real worry is if this is shared by those outside the tech sector. We can all sit around speculating if the sky is going to fall in without it really mattering, but if it shared by those outside then it can become self-fulfilling.
deleted 11y ago
[deleted]
api 11y ago
I don't think we are in a bubble overall. I lived through 1999 and this is not that. But it's possible that there is a bubble in certain "unicorn" valuations. The question is to what extent these unicorns are leveraged against their possibly-fictitious valuations? Can they survive a collapse of those valuations to more 'sane' levels? One way they could be leveraged is options promised to key employees, all of which would now be underwater. Of course any company that suffers a valuation collapse and has no cash on hand is toast, since they won't be able to raise on anything other than bend-over terms. So part two of my question is how much cash the unicorns have. If they have enough to last, they'll probably be okay. Edit: There are some good arguments against an overall bubble here. Slide 10 with "spending per person online" is a very powerful argument against an Internet bubble but not necessarily against all possible bubble scenarios. http://a16z.com/2015/06/15/u-s-tech-funding-whats-going-on/ http://a16z.com/2015/06/15/u-s-tech-funding-whats-going-on/ But as I said above, it's possible that there are "mini-bubbles" and that these could pop destructively. Of course there are other questions, like to what extent are VC firms exposed to China risk and to what extent will stock market losses destroy angel and VC investment? It's possible that the tech field itself is not in a bubble per se, but that it's part of a larger bubble in the global economy.
curiousjorge 11y ago
Andreesen talked about this. His specifically mentions that many many startups and tech companies are going to evaporate overnight if the capital stops and these are run by people who are basically burning cash and not knowing what they are doing. A major market correction.
ChuckMcM 11y ago
I am SO ready for the traffic relief we got in 1999/2000 :-) But in this case it's China's market not the US market, so traffic relief in Chenzen? Presumably it would be a challenge if your new startup was selling to people in China.

by timr 11y ago

cm2187 11y ago

I wonder what jet.com is worth now

adventured 11y ago
Well if you want a prediction for a company that's going to take a huge hit in this downturn: Tesla They're going to deploy the Model X into a temporarily contracting electric car market, with China upside down, and with the US upper class pulling back spending due to a big drop in asset values. The gigafactory will cost vast sums yet to finish and get functional, and then it'll hit the market with weak demand for several years at least. Meanwhile Tesla's growth on the Model S, which has already stalled out, will get hammered further, pushing their already high quarterly losses even higher - all at time when raising more capital is going to be painful. Any company that needs a lot of financing to do what they do, is going to get hurt bad through this storm.
- aleh 11y ago
  If Tesla finds itself in position to need more capital, factories are better collateral than domain name and brand equity.

blackguardx 11y ago

I think we are in for a tech market correction at some point but I hope it isn't as drastic as the one you paint! Everyone seems so starry eyed in the Bay Area but few seem to remember 2008-2009 when even Google was laying people off. I remember going from being unhappy in my job to being thankful for having one in the span of a few months when pretty much all job postings dried up.

timr 11y ago
Likewise. I moved to SF right before Lehman, to work at a startup. I had next to no money in the bank when I moved here, and an outrageous rent to pay. It was (financially) terrifying -- but at least it cut back on the douchebaggery in the city! That said, 2009 wasn't a tech-specific downturn. New York had it far worse than us, and there were still tech companies doing their thing in SF, albeit on a much tighter budget, since the money wasn't flowing. The dot-com crash (which is essentially what I am describing) had its epicenter in SOMA, and we're a lot closer to that scenario than we are to Lehman -- outside of exports (oops, spoke too soon!) and shale oil/gas (oops, spoke too soon!), tech is the primary bright spot in our economy right now. The dumb money is flooding into tech instead of real estate this time, which means that when it does go away, the hangover is going to be pretty wicked.
- marincounty 11y ago
  "It was (financially) terrifying -- but at least it cut back on the douchebaggery in the city!" Don't get it? Personally, I can't find anything positive about spending so much of one's income on rent? If it's crime, my car is still broken into like its 1999?
- go1979 11y ago
  I got a new job in SV in 2008 as well. People were congratulating me that I managed to get "an" offer. Lots of places had hiring freezes back then. When did things change in the valley? Was it Q4 2010? Q1 2011? I'm genuinely curious and trying to refresh my memory. I feel like I was in a funk and then woke up one day with all this Unicorn talk. Today, housing prices in MV "seem to be" 100% more than what they were in 2010. What the heck happened? Does "Unicorns" explain all of that? Forign investors? Ultra low interest rates??

mavdi 11y ago

Glad I paid off the mortgage.

dvirsky 11y ago
Lucky me, I don't even have a mortgage to pay! Oh well, I guess my family could always move into my mom's spare room.

danieltillett 11y ago

Yes watch the unicorns. It is the private equity market that will be the place that breaks first. If this dries up then things will go down hill quickly. I actually think this will be good for the VC industry. Valuations will come back to something based on a universe that is possible and with long term investor (all those locked up limited partners) they can invest with thoughtfulness. It won’t be pretty for the angel investors though.

w1ntermute 11y ago

Many unicorn valuations have already taken a hit: https://www.theinformation.com/articles/mutual-funds-show-markdowns-on-private-stocks https://www.theinformation.com/articles/mutual-funds-show-ma... MongoDB and Gilt Groupe (both of which happen to have been cofounded by ex-DoubleClick CEO Kevin Ryan: https://en.wikipedia.org/wiki/Kevin_P._Ryan https://en.wikipedia.org/wiki/Kevin_P._Ryan) are specifically called out.

timr 11y ago
It isn't all bad, of course. Hastening the removal of MongoDB from our lives is my kind of silver lining.
- w1ntermute 11y ago
  Given that it's AGPLed, it unfortunately doesn't look like MongoDB (the joke of a DB) will be going away any time soon, even if MongoDB Inc. (the joke of a company) does. What I'm not looking forward to is a culling of all the on-demand apps available in the Bay Area (https://www.theinformation.com/investors-asking-tough-questions-of-on-demand-apps https://www.theinformation.com/investors-asking-tough-questi...) - I've really enjoyed subsidizing convenience with VC/PE cash.
  - _pmf_ 11y ago
    > MongoDB Inc. (the joke of a company) I don't know; selling support contracts for a product that requires a lot of support is a pretty solid business model. SAP comes to mind.
  - pjc50 11y ago
    Speaking of on-demand apps, http://ftalphaville.ft.com/2015/08/19/2137749/china-uber-but-for-countries/ http://ftalphaville.ft.com/2015/08/19/2137749/china-uber-but... (especially the snarky table of comparisons)
  - puranjay 11y ago
    Except for Uber and a handful of other services, I really don't think the other 'on-demand' businesses are scaleable.

dvirsky 11y ago

One major difference is that large parts of the internet are economically viable, and not just driven by money pumped in by VCs and IPOs. Back in 2000, there was little real consumer money going into the web's money cycle. Google didn't even have Adwords back then! Of course there's still a large chunk of revenue today that is just recycling VC money - e.g. apps advertising in other apps, or AWS which is a huge sink of VC money from other startups. But there is a lot more "end user" money coming in from real people and companies that purchase products and services online. Even if that flow stops, the internet today is less of a ponzi scheme as a whole.

timr 11y ago
You're right that there's more legitimate internet revenue than in 2000. But most of that is going to a few established players that are decidedly post-unicorn in nature. I don't think Google is going anywhere (though Twitter might just get its fatal wound; that would be a particularly symmetrical ending, wouldn't it? Company born of the ashes of dot-com 1.0 dies in the explosion of dot-com 2.0. But, I digress.) From what I know, most of the "unicorns" are neither profitable nor particularly modest with their spending. They are vulnerable to any sort of turn in investor sentiment, even if their revenue streams are real.
- dvirsky 11y ago
  Yeah, of course, there's a real valuation bubble going on. I don't think we'll see twitter going anywhere, too - it's a good product after all. But maybe returning to its real size in terms of worth, number of employees and spending.
- somberi 11y ago
  I find this article thoughtful: http://www.economist.com/news/briefing/21659722-tech-boom-may-get-bumpy-it-will-not-end-repeat-dotcom-crash-fly http://www.economist.com/news/briefing/21659722-tech-boom-ma... The key is that allegedly "overvalued" companies (like Uber say)are still under private investment which has a larger appetite for risk. Whereas in the last boom, most of the speculation were fueled by publicly traded tech stocks. Edit: Grammar.

pjc50 11y ago

Systemic shock is likely to be lower than you'd expect, as the Chinese stock market is on the other side of capital controls to the west and so therefore less linked. I do agree that there's a lot of 1999-like companies around, especially people wanting to do Webvan 2.0.

toyg 11y ago
The feared impact is a systemic Asian downturn crashing industrial export towards the area, which in turn would reduce demand for services. Germany in particular is currently being watched, since their industry relies on export towards Asia quite heavily these days (since European demand is overall low). If German giants start feeling the pinch, the startup world in Berlin will inevitably get hit. From a US perspective I honestly don't know. Chinese investments are mostly one-way anyway (it's hard to take money out of China) so they shouldn't significantly impact any honest balance sheet; however, if Japan and Singapore start going under as well, things might turn ugly all around.

BadassFractal 11y ago

Very exciting time for companies with good reserves. Can't wait for more engineers to start looking for jobs and the ability to lower salaries.

deciplex 11y ago
Which company do you belong to?
- _nedR 11y ago
  The correct question is : Which company belongs to him?
  - deciplex 11y ago
    Yeah, whichever - point being he should let us know where not to send our CVs.
jazzyk 11y ago
You forgot your signature: Mark Zuckerberg :-)

joezydeco 11y ago

Where's Pud when we need him the most? Bring back fucked fuckedcompany.com!

danmaz74 11y ago

The scenario you paint is far from sure but possible; but why are you using to comment a crash on the Chinese stock? I hardly see a correlation. There could even be a negative correlation, if more investor money flows back from Asia to the West.

deleted 11y ago
[deleted]

blazespin 11y ago

Not quite right. Interest rates play a larger role all this, which compared to 2000 are at historical lows. The fed might even cut, now. Negative real rates will spur speculative investments.

DanielBMarkham 11y ago

And small, self-funded, nimble startups outside the valley eat the lunch of overstaffed and overfunded startups with high leverage and a gun to their head. I don't think we're due another cycle yet, but every cycle just decreases the amount of money you actually need to make a go of it. Sometime over the next 5-10 years another bust would probably be an overall good thing.

mcv 11y ago

So the smart investment is in U-Haul right now?

david927 11y ago
No, the smart investment is in "cash" right now.
- go1979 11y ago
  I sat on cash since 2008 and don't feel particularly smart.
  - rubiquity 11y ago
    What is 8 + 8 + 8 + 8 + 8 + 8 - 48?
  - _nedR 11y ago
    I don't think this is a bad time to revisit an old chinese proverb : https://sivers.org/horses https://sivers.org/horses
abledon 11y ago
Exciting new SV market : U-Haul startups tag-line: "Location based, real-time, mass-aggregator content manipulation"
pinaceae 11y ago
no, the smart thing is to quickly create a startup, uber for uhaul. slick app, shows all available trailer and trucks, you order and they appear in minutes, all transactions done through app. there, go get rich (or not).
eigenvalue 11y ago
I know this is supposed to be facetious, but UHAL stock is actually quite attractive at current levels. They own a growing self-storage business but don't break out the profit contribution (although they do disclose the revenue contribution). Pure-play self-storage stocks like EXR/SSS/PSA trade for 18-20x 2016 TEV/EBITDA. If you give UHAL credit for that on the estimated earnings from the self-storage business, you are getting the moving business for a very undemanding valuation despite it growing 5-6% per year and with a dominant market position.

sho 11y ago

Something of a tangent to what you said, but I see other parallels between current events and 1999 - this is what happens when unsophisticated investors gain sharemarket access for the first time. It happened in the late 90s in the states (remember those "trading poolside" etrade ads?); it's happening now in China. Only recently you've been able to actively trade and view your portfolio on smartphone apps; it became a kind of game and more and more people piled in. I know people there who were up tens of thousands in paper gains even a month ago and could not be convinced they were basically gambling. Well, they're convinced now :-P I suppose this is the way people learn...

admyral 11y ago
Are you really blaming financial instability on "unsophisticated investors"? Not on automated, high speed traders able to liquidate stocks and topple markets in seconds? Not on reckless, fear-mongering media outlets competing for the most sensationalist headline? Not on government action/inaction affecting trillions in assets?

netcan 11y ago

I think taking 1999 as a general example is a bad idea. The mechanics of how the bubble popped is not really interesting. It could have popped any number of ways. What happened in the 90s was this. People realized the internet was a huge deal. World changing, re-writing the rules of the economy, among other major human institutions (learning, governance, etc.) They were right. 20 years later a lot has changed because of the internet. Revolutions have been driven by it. Economic titans have been created by it. A large chunk of the blue chip economy is now made up of internet and internet compliment companies, even Apple & MSFT are in that category. Google, Alibaba. The new blue chips being generated today are internet companies and I'll wager the blue chips generated in 2030 will also be driven by this. The investors of 1997 were not wrong about the scale of the revolution. What they were wrong about was the importance of early mover advantages. It's as if they expected the internet economy to be built behind walls constructed in their entirety by 2000. They thought they were buying shares in Google, Facebook, Alibaba & Uber, that these companies were all being founded between 95 and 98. Seems silly now. But, hindsight. The really large scale irrational exuberance lasted a short while, just 2-3 years maybe less. That's hard to justify but it's the end of a bubble when bubble thinking is totally disconnected with the rules outside the bubble. In that environment, it doesn't matter what bursts the bubble, it's going to burst. Without that kind of bubble, you don't get that kind of burst. With that kind of bubble, you inevitably get that kind of burst. Investor sentiment may be fickle, but U-haul traffic jams are caused by real economics, not panicky investors. So, who are these unicorns? Can they survive a month or twenty of panicky investors? Can they do away with investors all together? Are they reliant on investor money for revenues like all the ad selling startups of 1999? Here they are: http://graphics.wsj.com/billion-dollar-club/ http://graphics.wsj.com/billion-dollar-club/ I think no matter what investors do tomorrow morning, Uber, Xiomi, AirBnB and Palantir will still pay salaries, bonuses and such. The IPO might be put off by a couple of years. If the market goes extremely nasty a lot of people who expect to buy houses with stock options will be disappointed. That might cause trouble. U-Hauls? I don't see it.

Marazan 11y ago
Uber is burning through cash, without fresh investment they cannot keep going on their current course.

nitrogen 11y ago

It's important to remember that companies and programmers at the top of their games can still thrive in a down economy. There will always be software to write, especially in economic sectors that aren't directly wired to startups. Take ecommerce for example, which depends on income from the whole population. The whole population never recovered from the last market downturm, yet people still need to buy stuff, and increasingly do so using apps and the web. I just hope urban real estate doesn't go even more berserk with investors looking to park otherwise uninvestable money.

marincounty 11y ago
"I just hope urban real estate doesn't go even more berserk with investors looking to park otherwise uninvestable money." I fear this too, and I have benefitted greatly from this realestate bubble. My two hopes are: The Fed doesn't chicken out, and starts to raise interest rates. Plus, I would like to see an immediate end to foreigners buying realestate without becoming citizens first! At least residential? Right now they can pick up a phone, and buy any home.
spb 11y ago
> The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies. > When Microsoft and Apple were founded. http://paulgraham.com/badeconomy.html http://paulgraham.com/badeconomy.html

bottled_poe 11y ago

I think the fact that this is the top comment says a lot about the general sentiment of people working in the tech sector.

bpodgursky 11y ago
HN is not really tech worker dominated anymore.
danieltillett 11y ago
Yes. The real worry is if this is shared by those outside the tech sector. We can all sit around speculating if the sky is going to fall in without it really mattering, but if it shared by those outside then it can become self-fulfilling.

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api 11y ago

I don't think we are in a bubble overall. I lived through 1999 and this is not that. But it's possible that there is a bubble in certain "unicorn" valuations. The question is to what extent these unicorns are leveraged against their possibly-fictitious valuations? Can they survive a collapse of those valuations to more 'sane' levels? One way they could be leveraged is options promised to key employees, all of which would now be underwater. Of course any company that suffers a valuation collapse and has no cash on hand is toast, since they won't be able to raise on anything other than bend-over terms. So part two of my question is how much cash the unicorns have. If they have enough to last, they'll probably be okay. Edit: There are some good arguments against an overall bubble here. Slide 10 with "spending per person online" is a very powerful argument against an Internet bubble but not necessarily against all possible bubble scenarios. http://a16z.com/2015/06/15/u-s-tech-funding-whats-going-on/ http://a16z.com/2015/06/15/u-s-tech-funding-whats-going-on/ But as I said above, it's possible that there are "mini-bubbles" and that these could pop destructively. Of course there are other questions, like to what extent are VC firms exposed to China risk and to what extent will stock market losses destroy angel and VC investment? It's possible that the tech field itself is not in a bubble per se, but that it's part of a larger bubble in the global economy.

curiousjorge 11y ago

Andreesen talked about this. His specifically mentions that many many startups and tech companies are going to evaporate overnight if the capital stops and these are run by people who are basically burning cash and not knowing what they are doing. A major market correction.

ChuckMcM 11y ago

I am SO ready for the traffic relief we got in 1999/2000 :-) But in this case it's China's market not the US market, so traffic relief in Chenzen? Presumably it would be a challenge if your new startup was selling to people in China.