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Just scanning across headlines of the last few days: - San Francisco commercial real estate at record highs, passing NYC in price per square foot (which last h

Just scanning across headlines of the last few days: - San Francisco commercial real estate at record highs, passing NYC in price per square foot (which last happened just before things imploded last time around) - Multiple SF area tech companies running rounds of layoffs - VC funding took a nose dive last quarter - Quite a few unicorns or near unicorns having their valuation tank post-IPO, having a difficult fundraising round or seeing their valuations slashed on private markets One can debate if the Valley is in a full blown bubble, but seems increasingly obvious at a minimum there's a significant cooling off on the horizon.

Apocryphon 11y ago
It'd be nicer if the cooling down effect led to a plateauing of those record high rents, even if dropping is too much to hope for.
w1ntermute 11y ago
I think we can all agree that this year is going to be pretty ugly, both in the tech industry and the broader economy. With the Fed planning to hike interest rates repeatedly, the Chinese economy in a tailspin, and the VC bubble rapidly deflating, there seems to be little doubt that winter is coming. And it's not all the VCs and other pundits on Twitter saying everything's going to be OK that are going to suffer as a result. None of the problems that we caught just a glimpse of during the financial crisis were really fixed - they were just patched over with some spit and duct tape. The interest on that technical debt will have to be paid sooner or later.
- fratlas 11y ago
  Do you think this will seriously affect job opportunities for devs? I'm an almost-grad who switched from electrical engineering because the jobs were abysmal, and the bad luck seems to be following me :-)
  - w1ntermute 11y ago
    The fact that you know about this problem already puts you far ahead of all the people who are still unaware. The best option (if you're not a senior) is to do a summer internship, which leads to a full-time offer. The next best is to get interviews through personal referrals. If all else fails, whiteboard like crazy and do your homework on the companies you're applying to, which will be a lot (hundreds).
    - fratlas 11y ago
      I just assumed most devs would be worried about the potential affects of the bubble. Currently typing this from my summer intership, so your comment has given me so hope, thank you!
  - tsunamifury 11y ago
    Don't worry about it or listen to the HN doom-sayers, they like to exaggerate and self-aggrandize. Broadly -- software, the web, social products, automation, or advertising aren't going anywhere in the next two years. These are all driven by development and require developers. High competition markets might slow leading to not getting a massive out of school offer. But you'll get offers if you're looking. Honestly you're better off starting your career at a middle point or low point in the market rather than a high point. You'll be better calibrated for the ups and downs and you are far more resilient and flexible. I graduated in 2009, when there were no jobs and it was awful. I slowly climbed my way to Google and on into an exciting future.
    - pfarnsworth 11y ago
      You really have no idea. 2009 was mild for SV. The dotcom bust per-capita was worse than the autoindustry layoffs in the 80s. I lived through it. It was very hard, and some people I know were out of jobs for 2 years. Our company had half a dozen layoffs in 12 months and we shrank by 50%. If 2016 is half of what 2001 was, then most new grads won't get jobs.
      - 11y ago
- tootie 11y ago
  I don't get it. The Fed is raising rates because the economy is recovering.
  - dredmorbius 11y ago
    The Fed has two mandates -- its "dual mandate": 1. Control inflation. 2. Manage unemployment. They are, unfortunately, directly at odds. Fighting inflation tanks the economy (that's what Paul Volker did in the late 1970s, to tackle "stagflation", and Jimmy Carter's 2nd term hopes), and promoting employment tends to hot up inflation. Over the past 8 years, the Fed (and other central bankers) have dumped unholy amounts of liquidity into the global economy. That is, they've been "printing money", except that the Fed doesn't actually print money, it simply wills it into existence. It's done this after reducing its own lending rates (the prime rate) to effectively zero wasn't sufficiently stimulating the economy. It's slightly more complex than that: the Fed distributes that money by buying "assets" from major banks -- it's an auction process, but the goal of the Fed isn't to get valuable assets[1], only to manage how that money's introduced to the economy and keep tabs on its value by way of inflation, as I understand it. For whatever the reasons, inflation hasn't actually been a problem, though the reasons why are elusive, and several alternatives have been suggested: 1. The money's gone into financial instruments, including stocks and real estate. The rise in major stock market indices and the Fed's balance sheet (its money supply injections) pretty much exactly track one another. 2. It's gone into offshore tax havens. Last numbers I've seen are about $7 trillion from the US, and $25-30 trillion globally, from various sources. The ICIJ and The Guardian have run a multi-year expose on off-shore investment havens, and other financial sources have reported on this. 3. Chasing other investments. Silicon Valley VC money comes from somewhere, and much of it chases start-ups whose ultimate valuation is either advertising potential, or buy-it-to-kill-the-threat-to-us (WhatsApp's purchase by Facebook). Advertising's terrifying because a tremendous amount of it is financial services -- about 40% in "FIRE" industries: finance, insurance, and real estate. Pull the plug on easy money, and all three of those tailspin. Which gets us to why fighting inflation is seen as such a bad thing. Usually the argument given is "inflation hurts those with fixed incomes", by which most people think of the elderly on social security or pensions. But we've learned how to fix that: you index those systems to inflation, hence SSI's COLA adjustment -- the cost-of-living factor that boosts Social Security payments. Who really get hurt by inflation are those who are holding dollar-denominated assets. Lenders. That's banks, and holders of bonds (debt), which aren't themselves inflation adjusted. If you've got a home mortgage, inflation is your best friend, because it reduces the amount of your debt (in real terms) while your income increases. Banks, on the other hand, hate that, because their assets (your mortgage) falls in value. So: the Fed is raising rates to stem inflation fears, even though inflation's been fairly much a non-player. Probably because banks and other lenders / bondholders are getting nervous. And to give itself more maneuvering room. There's a whole bunch more in this, such as what money "really" is (in a functional / role sense, not the boring old fiat-vs-gold-backed debate), what, whether, why, and how economic growth is, can be extended, is justified, and is based on, and whether or not inflation is an unavoidable element of a collapsing economic system. On that last, the fate of the (specie-based) Roman denarius is quite interesting. But stay tuned. Things might get interesting. ________________________________ Notes: 1. Told to me directly by a regional Fed branch president in a public Q&A.
Animats 11y ago
Definitely a bubble, but this time, the VCs and private equity are the losers, because the "unicorns" haven't gone public. Not as bad as last time, because this time, most of the startups have at least enough revenue to pay their running expenses.
- soldergenie 11y ago
  Startup employees which took a pay cut in exchange for equity are going to be the biggest losers. At least VCs and private equity have some level of protection against a decline in valuation from their preferred shares/liquidation preferences. It won't protect them against bankruptcy, but it is a lot better than nothing. Employee's generally don't have that type of protection, and the liquidation preferences also decrease the value of the common shares after a down round. So even with a relatively modest decline in overall valuations, a lot of employees are going to end up with worthless options/shares after a down round.
  - hibikir 11y ago
    Hopefully that will be a good lesson that will hit the next group of young and bright eyed developers. It's not as if equity is necessarily bad, but unless you are a founder, you have ZERO control over what is going to happen to your equity. If the plan is not to exit after just a few years, you could be stuck for a long time, if just because without an IPO, you won't even be able to keep your equity if you leave, even if it's just because you can't pay the taxes. I think that educating recent graduates about what are the realistic outcomes of betting on equity. For every early google employee, there are thousands of people whose equity was worth nothing. Even options in big companies can be worth nothing, if they were handed to you at very high prices. When people learn the real risks, we'll see employees getting either a whole lot more equity, or salaries will go up. Either way, good for the industry.
riebschlager 11y ago
Everything you just mentioned, plus stuff like this[1] really make this seem like a bizarro replay of the 1920s. That does not bode well. [1] http://fortune.com/2015/12/16/yahoo-holiday-party/ http://fortune.com/2015/12/16/yahoo-holiday-party/
- deleted 11y ago
  [deleted]
cenal 11y ago
The VC bubble is already popping and it's going to affect this year but I don't think it will have as much of an impact on the economy as the Chinese stock market collapsing to more realistic valuations. Let's also keep in mind that the world is becoming more automated, not less, so this isn't going to be last time we see bubble valuations in our lifetime.
flylib 11y ago
VC funding announced in first week of 2016 is significantly more then first week of 2015 as a counter argument
castell 11y ago
Is the cooling off phase only in VC funded software companies in the SF area? Or also in Fintech, bio, med, etc? What about NY, London? Also what happened with public companies that had their IPO just a few months before the Dot-com bubble in March 2000? Are there good books about the Dot-com bubble? What is the outlook for SaaS companies? If there are less VC funded startups, should they focus on enterprise sales?

Apocryphon 11y ago

It'd be nicer if the cooling down effect led to a plateauing of those record high rents, even if dropping is too much to hope for.

w1ntermute 11y ago

I think we can all agree that this year is going to be pretty ugly, both in the tech industry and the broader economy. With the Fed planning to hike interest rates repeatedly, the Chinese economy in a tailspin, and the VC bubble rapidly deflating, there seems to be little doubt that winter is coming. And it's not all the VCs and other pundits on Twitter saying everything's going to be OK that are going to suffer as a result. None of the problems that we caught just a glimpse of during the financial crisis were really fixed - they were just patched over with some spit and duct tape. The interest on that technical debt will have to be paid sooner or later.

fratlas 11y ago
Do you think this will seriously affect job opportunities for devs? I'm an almost-grad who switched from electrical engineering because the jobs were abysmal, and the bad luck seems to be following me :-)
- w1ntermute 11y ago
  The fact that you know about this problem already puts you far ahead of all the people who are still unaware. The best option (if you're not a senior) is to do a summer internship, which leads to a full-time offer. The next best is to get interviews through personal referrals. If all else fails, whiteboard like crazy and do your homework on the companies you're applying to, which will be a lot (hundreds).
  - fratlas 11y ago
    I just assumed most devs would be worried about the potential affects of the bubble. Currently typing this from my summer intership, so your comment has given me so hope, thank you!
- tsunamifury 11y ago
  Don't worry about it or listen to the HN doom-sayers, they like to exaggerate and self-aggrandize. Broadly -- software, the web, social products, automation, or advertising aren't going anywhere in the next two years. These are all driven by development and require developers. High competition markets might slow leading to not getting a massive out of school offer. But you'll get offers if you're looking. Honestly you're better off starting your career at a middle point or low point in the market rather than a high point. You'll be better calibrated for the ups and downs and you are far more resilient and flexible. I graduated in 2009, when there were no jobs and it was awful. I slowly climbed my way to Google and on into an exciting future.
  - pfarnsworth 11y ago
    You really have no idea. 2009 was mild for SV. The dotcom bust per-capita was worse than the autoindustry layoffs in the 80s. I lived through it. It was very hard, and some people I know were out of jobs for 2 years. Our company had half a dozen layoffs in 12 months and we shrank by 50%. If 2016 is half of what 2001 was, then most new grads won't get jobs.
    - 11y ago
tootie 11y ago
I don't get it. The Fed is raising rates because the economy is recovering.
- dredmorbius 11y ago
  The Fed has two mandates -- its "dual mandate": 1. Control inflation. 2. Manage unemployment. They are, unfortunately, directly at odds. Fighting inflation tanks the economy (that's what Paul Volker did in the late 1970s, to tackle "stagflation", and Jimmy Carter's 2nd term hopes), and promoting employment tends to hot up inflation. Over the past 8 years, the Fed (and other central bankers) have dumped unholy amounts of liquidity into the global economy. That is, they've been "printing money", except that the Fed doesn't actually print money, it simply wills it into existence. It's done this after reducing its own lending rates (the prime rate) to effectively zero wasn't sufficiently stimulating the economy. It's slightly more complex than that: the Fed distributes that money by buying "assets" from major banks -- it's an auction process, but the goal of the Fed isn't to get valuable assets[1], only to manage how that money's introduced to the economy and keep tabs on its value by way of inflation, as I understand it. For whatever the reasons, inflation hasn't actually been a problem, though the reasons why are elusive, and several alternatives have been suggested: 1. The money's gone into financial instruments, including stocks and real estate. The rise in major stock market indices and the Fed's balance sheet (its money supply injections) pretty much exactly track one another. 2. It's gone into offshore tax havens. Last numbers I've seen are about $7 trillion from the US, and $25-30 trillion globally, from various sources. The ICIJ and The Guardian have run a multi-year expose on off-shore investment havens, and other financial sources have reported on this. 3. Chasing other investments. Silicon Valley VC money comes from somewhere, and much of it chases start-ups whose ultimate valuation is either advertising potential, or buy-it-to-kill-the-threat-to-us (WhatsApp's purchase by Facebook). Advertising's terrifying because a tremendous amount of it is financial services -- about 40% in "FIRE" industries: finance, insurance, and real estate. Pull the plug on easy money, and all three of those tailspin. Which gets us to why fighting inflation is seen as such a bad thing. Usually the argument given is "inflation hurts those with fixed incomes", by which most people think of the elderly on social security or pensions. But we've learned how to fix that: you index those systems to inflation, hence SSI's COLA adjustment -- the cost-of-living factor that boosts Social Security payments. Who really get hurt by inflation are those who are holding dollar-denominated assets. Lenders. That's banks, and holders of bonds (debt), which aren't themselves inflation adjusted. If you've got a home mortgage, inflation is your best friend, because it reduces the amount of your debt (in real terms) while your income increases. Banks, on the other hand, hate that, because their assets (your mortgage) falls in value. So: the Fed is raising rates to stem inflation fears, even though inflation's been fairly much a non-player. Probably because banks and other lenders / bondholders are getting nervous. And to give itself more maneuvering room. There's a whole bunch more in this, such as what money "really" is (in a functional / role sense, not the boring old fiat-vs-gold-backed debate), what, whether, why, and how economic growth is, can be extended, is justified, and is based on, and whether or not inflation is an unavoidable element of a collapsing economic system. On that last, the fate of the (specie-based) Roman denarius is quite interesting. But stay tuned. Things might get interesting. ________________________________ Notes: 1. Told to me directly by a regional Fed branch president in a public Q&A.

Animats 11y ago

Definitely a bubble, but this time, the VCs and private equity are the losers, because the "unicorns" haven't gone public. Not as bad as last time, because this time, most of the startups have at least enough revenue to pay their running expenses.

soldergenie 11y ago
Startup employees which took a pay cut in exchange for equity are going to be the biggest losers. At least VCs and private equity have some level of protection against a decline in valuation from their preferred shares/liquidation preferences. It won't protect them against bankruptcy, but it is a lot better than nothing. Employee's generally don't have that type of protection, and the liquidation preferences also decrease the value of the common shares after a down round. So even with a relatively modest decline in overall valuations, a lot of employees are going to end up with worthless options/shares after a down round.
- hibikir 11y ago
  Hopefully that will be a good lesson that will hit the next group of young and bright eyed developers. It's not as if equity is necessarily bad, but unless you are a founder, you have ZERO control over what is going to happen to your equity. If the plan is not to exit after just a few years, you could be stuck for a long time, if just because without an IPO, you won't even be able to keep your equity if you leave, even if it's just because you can't pay the taxes. I think that educating recent graduates about what are the realistic outcomes of betting on equity. For every early google employee, there are thousands of people whose equity was worth nothing. Even options in big companies can be worth nothing, if they were handed to you at very high prices. When people learn the real risks, we'll see employees getting either a whole lot more equity, or salaries will go up. Either way, good for the industry.

riebschlager 11y ago

Everything you just mentioned, plus stuff like this[1] really make this seem like a bizarro replay of the 1920s. That does not bode well. [1] http://fortune.com/2015/12/16/yahoo-holiday-party/ http://fortune.com/2015/12/16/yahoo-holiday-party/

deleted 11y ago
[deleted]

cenal 11y ago

The VC bubble is already popping and it's going to affect this year but I don't think it will have as much of an impact on the economy as the Chinese stock market collapsing to more realistic valuations. Let's also keep in mind that the world is becoming more automated, not less, so this isn't going to be last time we see bubble valuations in our lifetime.

flylib 11y ago

VC funding announced in first week of 2016 is significantly more then first week of 2015 as a counter argument

castell 11y ago

Is the cooling off phase only in VC funded software companies in the SF area? Or also in Fintech, bio, med, etc? What about NY, London? Also what happened with public companies that had their IPO just a few months before the Dot-com bubble in March 2000? Are there good books about the Dot-com bubble? What is the outlook for SaaS companies? If there are less VC funded startups, should they focus on enterprise sales?