17 ms·

Tech faces hour of reckoning as fundraising drops, layoffs rise

222 points by apsec112 11y ago

djcapelis 11y ago
Huh. Is it finally starting? Overdue, if true. If not, I guess we'll keep waiting for the next hangover to catch up to us.
bovermyer 11y ago
On the face of it, this just appears to be a possible end of the VC bubble. I highly doubt that this means much for startups that are built solely with founders' capital.
- hyperbovine 11y ago
  All four of them...
- forgetsusername 11y ago
  >I highly doubt that this means much for startups that are built solely with founders' capital. You need to distinguish between startups (people starting their own business), and "startups" (VC funded technology companies of a certain model). I'm sure the former won't be nearly as affected as the latter.
- castell 11y ago
  What if many of your customers are VC backed startups?
  - timrpeterson 11y ago
    That was like Yahoo in 2000. It's a problem.
- rwmj 11y ago
  Depends if you're selling advertising services, software or other shovels which are mainly purchased by VC-funded companies.
- te_chris 11y ago
  What about the multitude of startups whose main customers are other funded startups? And the agencies who are similar. Could get hairy.
  - axx 11y ago
    That's kind of what the dotcom bubble was. Startups with only startups as their customers. All juggling fantasy money around until some investors wanted their money back.
    - signa11 11y ago
      > Startups with only startups as their customers. it was not just that there were startups which were feeding off of other startups. even big-name established companies e.g. sun, csco etc. were pretty deeply involved.
    - ams6110 11y ago
      A lot of it was actually startups with no customers to speak of at all.
  - AngrySkillzz 11y ago
    Yeah, that's the part that I'm concerned about. All the companies providing development tools, SaaS, process management, education/training, staffing, etc. for tech startups are done for if investment collapses.
xiphias 11y ago
My favaurite part: "We're in a bit of a different bubble this time, the exuberance now has a foundation" as measured by market size and sales potential, he says. Sure, it's always different this time for a CEO who needs to keep hopes up for investors. Sales is crashing with the deflation that is coming. And also overvaluations are followed by undervaluations when the interest rates increase.
- pistle 11y ago
  "It's different this time." Said every time. Of course the details of the crashing waves are different, but the tide is the same every time.
  - tomjen3 11y ago
    Yes it is said every time, until the last time when the rules really are different - one early summer when there really will be no more war in Europe, one cold november night when the Berlin Wall just opens, one fall when a scrappy little upstart in a colony forces the worlds biggest empire to leave, one december when Ireland was free, etc. Predictions about the future are hard.
  - draw_down 11y ago
    Actually what people are constantly saying now is what you posted. It's to the point where if you suppose that everything is not an exact recurrence of the dot-com bust, you're seen as delusional. But everything can't be exactly the same as it was then.
- AngrySkillzz 11y ago
  In Schiller's "Irrational Exuberance," where he discusses bubble formation and deflation, he refers to it as "new era thinking;" the idea that even if the economics of the present seem crazy, it's totally going to work this time because we're in a new era. Things are different from what happened last time, really. The punchline is that basically every bubble that ever existed was characterized by new era thinking. Looking at it like a Bayesian, the presence of new era thinking is a high-confidence indicator that you're in a bubble.
jjoe 11y ago
Most startups have already priced this fundraising-drought in their previous fundraisers. Instead of raising exactly what they needed, they over-raised by double or tripple that. It's selfish in some way as it likely contributed to the negative sentiment and the high valuations. I think this won't be an acute bubble for incumbents but for early stage startups that need funds badly to keep the short runway clear.
- MrBuddyCasino 11y ago
  So while HN was still discussing whether or not there really is a bubble, startups already acted accordingly. This is an interesting disconnect to observe. Now did they over-raise because they were afraid of a bubble or did they know there was one? A pointless debate, probably.
  - kasey_junk 11y ago
    There is no way to know if there is a bubble until after it happens.
- bobby_9x 11y ago
  This is usually bad for the founders, because if it sells for less than the valuation they received during funding, they will most-likely get nothing. The VC always get paid first. Founders either need to get out early, understand that their position will eventually be just an employee, or not take in more funding than the company is worth. It does, however, work out in the tiny chance that the company sells for way more than it’s valued worth.
- forgetsusername 11y ago
  >Instead of raising exactly what they needed, they over-raised by double or tripple that Do you have any evidence of this? On the surface, it doesn't even make sense. There are two sides to every transaction; are you claiming that the entrepreneurs could see the slide coming, and anticipated it, but the financiers didn't?
  - 11y ago
StavrosK 11y ago
Wow, this article looks like it's pushing some agenda hard. They took one quarter that was pretty much the same for NA and Asia and much better for Europe as the comparable quarter in 2014 and use it to report "fundraising drops"? Looks to me like someone is trying to actually bring about fundraising drops by using spurious data. "Q4 2015 pretty much the same as Q4 2014, the sky is falling!"
- blazespin 11y ago
  Interest rates have finally gone up. Money has become 2x expensive. Everyone was predicting the bottom would fall out of tech when this happened.... and it happened. TBH, the fed should not have gone from 0.25 to 0.5 That was really really dumb. They should have gone from 0.25 to 0.3 or something. My guess if the bleeding keeps up, the Fed will have to do a rate cut. Should help things. Since I got downvoted, let me show the math: For an entity borrowing at fed funds rate, on 100B loan that is 250M to 500M annual payment after the hike. If it were 2.5% to 2.75% on 10B, that would be 250M to 275M. See the difference? Even a 50bp hike would just be 20% higher payments. If you're surviving at the edge of these loans, then doubling your payments could easily wipe you out.
  - walterbell 11y ago
    Interest rates are expected to continue rising in 2016.
    - zwischenzug 11y ago
      It's interesting that Fed members have downplayed the recent volatility: http://uk.reuters.com/article/uk-usa-fed-dudley-idUKKCN0UT2JE http://uk.reuters.com/article/uk-usa-fed-dudley-idUKKCN0UT2J... '''"The short-term volatility is not something that worries me for monetary policy; it reflects market participants trying to make sense of global developments," Williams told reporters on Friday, adding that he sees no signs of distress or a weak economy in declining asset values, and is unsurprised that stock prices .SPX would decline as the Fed raises rates.''' That's a pretty clear signal that the Fed have knowingly and openly popped a bubble. This is going to be painful.
guylepage3 11y ago
I've been hearing more and more of the companies feeling the Series A crunch. This will lead to many Seeds not making it into their next round. The times are changing for sure.
- bluejekyll 11y ago
  One great reason for public markets, is it takes away anecdotal evidence and you can actually have some real data backing up these claims. While this might be happening, do we have a method to track it with real data?
jondubois 11y ago
Sounds like things are going to get tough. I have mixed feelings about this. On one hand, I feel sorry for all those software devs (myself included) who might be out of a job in the next few months or whose salaries will start shrinking. On the other hand, it will be nice to watch some over-funded startups crumble to pieces and make room for more deserving (bootstrapped) newcomers.
dangerpowpow 11y ago
Data shown is based on 3 months.
mizchief2 11y ago
I knew this bubble was going to burst when Snapchat was offered $4b and they turned it down.
code4tee 11y ago
When the tide goes out you get to see who's been swimming naked. The tide is starting to go out..
VeilEm 11y ago
Great, can we stop calling it a bubble now? Like if there were an actual bubble in the bay area, bad trends like this would have popped it? The thing is things aren't really see-sawing. The pendulum isn't going to swing as hard as it did in 2000 as it would have done so already. That the technical companies in the bay area seems to be isolated from the hardships of the rest of the economy doesn't make it a bubble, it's simply a place with a different economic focus with different economic realities. I swear people around here actually sometimes seem to wish bad things would happen, as some kind of schadenfreude. We see these high valuation numbers being lobbed around as some kind of insult to good sense, but we're talking about just a few companies and in the grand scheme of the size of the economy in San Francisco, Palto Alto, Mountain View and San Jose these numbers are a tiny fraction of the overall system. The reality is that software is still eating the world, and more change and value to be derived therefrom is still to come: automated vehicles, robotics, smart appliances, VR, and a myriad of far less sexier technological innovations with sound economic value creation.
- acdha 11y ago
  You had a lot of company saying the same things in 1999. A central fallacy is assuming that because an idea seems inevitable the companies in that field now will be the ones doing it. Software is indeed eating the world but that doesn't mean that, say, those smart vehicles or robots will be made by a startup rather than GE or GM, or in one of the most expensive places in the world. Remember Kozmo.com? They're a fading memory but a lot of my neighbors get their stuff delivered by the same grocery chain which was there in 1995 who now has a great website, mobile apps, and a fleet of delivery drivers. This also has an important corollary for developers: unless you have a significant chunk of equity, never forget that even if your company is one of the successes your personal success does not inevitably follow. Most C-level managers see people like us as an expense to be minimized.
  - icebraining 11y ago
    Software is indeed eating the world but that doesn't mean that, say, those smart vehicles or robots will be made by a startup rather than GE or GM, or in one of the most expensive places in the world. But is that what startups are doing? I mean, there's only one startup that has requested an Autonomous Vehicle Testing Permit in California - Cruise (YC W14) -, all the others are established companies. It's true there's a whole bunch of startups producing IoT trinkets, but those products are usually cheap and unambitious, not stuff that require large investments in R&D.
brightball 11y ago
"tech" is a bit broad. Programming startups are the most capable of have a very low operating budget with high growth, so the burn rates should be easier to minimize to get the most out of those investments. The tech startups that involve actual physical products with manufacturing, distribution, shipping, retail placement, etc are another story. It seems like we would be well served to have terms to differentiate for sake of headlines like this.
FussyZeus 11y ago
The companies that don't make it: CEO's fly away on golden parachutes sewn with the money they didn't earn, middle management goes on to other companies with an Impressive Name on Resume (+2 to hire-ability skill) added, and the engineers lose it all on the company stock they were promised could only go up and have to find a new source of income for the multi-thousand a month studio apartment they rented to get out there. (Yes I realize this is overly simplified and bleak, that's the point.)
- cballard 11y ago
  I've been wondering - in many startup companies, the engineers own all of the knowledge to run the company (documentation practices are discouraged by management because that's not "shipping"). Why don't we see more collective action? If the entire engineering staff walked, the company would be fucked, which gives them quite a bit of leverage. Meanwhile, the engineers can easily find other jobs since they're relatively in demand.
  - scarmig 11y ago
    If only there were some kind of organization of workers that could organize collective actions. Like, walking out and withholding your labor... Maybe we could call it a workers unified organization? A unity?
    - Apocryphon 11y ago
      A guild.
      - walshemj 11y ago
        Which has some unfortunate conations in American industrial history.
        Apocryphon 11y ago
        I was thinking of it in terms of online gaming.
at-fates-hands 11y ago
Nobody should really be surprised by this. People all over tech have been arguing about the bubble for some time. I see this as an early stage harbinger of things to come though. With the Fed raising rates, VC's already starting to hedge their bets, and friends of mine leaving startups to go back to stable corporate gigs, I see a shuffling of the deck, but nothing too major. I feel like this is the normal eight year tech cycle that is just coming back around again: - 1992 recession and crash - 2000 recession and crash - 2008 recession and crash
- intopieces 11y ago
  All election years, all resulted in change of ruling party. Is it a tech cycle, or just the people at the economic helm buckling down for changes in policy?
puranjay 11y ago
This comment from Tucker Max's article on why he stopped angel investing bears repeating here: > "But when you have a lot of money chasing all these great ideas, and you combine it with the fact that entrepreneurship has gotten sexy in the last few years and become the “in” thing for a certain crowd, what you end up with is a huge number of people starting companies who have no business at all doing that." http://observer.com/2015/08/why-i-stopped-angel-investing-and-you-should-never-start/ http://observer.com/2015/08/why-i-stopped-angel-investing-an... I've said this to tons of people privately and publicly: entrepreneurship has become the new "I'm working on a novel". Lots of people have good ideas in their heads. That doesn't mean they should be building businesses on them. Some people are just not cut out to be entrepreneurs. And once the money dries up, these will be the first ones to go. The rest will continue building businesses because they can't really think of doing anything else.
- orthoganol 11y ago
  I think anyone who follows the advice of Tucker Max, America's biggest no-apologies frat bro, should not be taken too seriously. You still got it wrong for who you should be investing in: People who have a vision driving them to the core, who can't imagine not seeing their change happen. People who just want to start businesses "because they can't really think of doing anything else", are people who just want the lifestyle or equate it with personal freedom or something. They don't have much of an edge.
  - woah 11y ago
    Is that like, a double ad hominem?
  - Disruptive_Dave 11y ago
    > You still got it wrong for who you should be investing in: People who have a vision driving them to the core, who can't imagine not seeing their change happen. This is a start, but only a start. I've run into plenty of these "types" who don't have the skills or experience to launch a successful startup. The question shouldn't just be "Do I have the passion for this?" but also "Do I have the abilities to execute this?"
sholanozie 11y ago
American investors would be well advised to look north of the border...
- MAGZine 11y ago
  Very true. With the low Canadian dollar, investment dollar will go way, way farther. Like probably 50% farther, given lower wages compounded by the lower dollar.
peter303 11y ago
Pretty accurate. Most of the so-called unicorns are overvalued by a factor of four or so through accounting tricks. The article is correct that it is not silly as the late 1990s. Many startups now actually have working products, revenues, and sometimes profits. Many 1990s companies lacked those.
debacle 11y ago
People shouldn't see this as negative signaling for tech, but rather positive signaling for other parts of the economy.
Ologn 11y ago
20 years ago, if you wanted to ship software, or run a web server on the Internet, you needed some amount of capital. I worked at one of the cheaper local Internet Service Providers in 1996, and with a 3-year contract we gave you 1 gig of traffic a month on your colocated box at 10 MB port speeds for $540 a month - you provide your own box. Now for $10 a month, Linode provides me with the VPS box, I get 2 TB transfer, 125MB port speed, and the plan is not yearly or monthly or even daily, but hourly. There are two app stores I can put apps out with, with a variety of monetization schemes. I know for Android that over 1 billion people use their Android device at least once a month. There is also the web. There has been an explosion of open source software, and improvements on existing software - Linux, Apache, and MySQL. Or Nginx and MongoDB. Plus free Java application servers, or Python, PHP or Javascript web frameworks. There is Paypal and Stripe. Companies have gone from renting offices to subleasing to co-working to virtual offices. If you can program (or can install software with minimal programming skill and have some creative ideas and will hustle), there has never been a time when fundraising has been less important, because you do not need money to get your product to market. This being the case, worrying about getting a job and layoffs makes less sense. Because nowadays you don't need an office, a shrink-wrapped software deal with computer stores, a handful of leased colo'd servers and IT team to support them. You can start with much less, get to where you're making a minimal living, and then go from there. After that you can take a job, or take seed/VC money if you want, but you don't have to. I have seen this come to pass, and I have heard many luminaries in Silicon Valley say the same thing. Of course, in good times it is less work and easier to get a job making low 6 figures programming, than it is to make $30k a year on your own bootstrapped business, never mind pushing that up to where it grows to $100k. It is a lot of work, as many have said. It is doable like never before though.
- gist 11y ago
  Yep. 1996 T1 line, web server alone was something like $7500 (in '96 dollars) CSU/DSU, router, server software was Netscape (paid for that), rent, then you had to actually spend a great deal of time acquiring customers (traditional newspaper advertising..)
- randycupertino 11y ago
  Yeah but then you can't cash out the VC money and get yourself a condo and a ferrari! http://www.businessinsider.com/secret-may-be-pivoting-to-a-startup-incubator-2015-3 http://www.businessinsider.com/secret-may-be-pivoting-to-a-s...
yggydrasily 11y ago
Biotech included: http://www.businessinsider.com/venrock-partner-bryan-roberts-on-the-2016-biotech-stock-market-2016-1 http://www.businessinsider.com/venrock-partner-bryan-roberts...
Kluny 11y ago
Are we taking USA Today seriously now? Why, please?
nemo44x 11y ago
""Companies will still raise funding, but at lower valuations," says Arianna Simpson, a Silicon Valley-based investor." I wonder if this means companies have gotten wise to the bad deals they were signing just to get a high valuation and are agreeing to lower valuations but not giving up preferred stock that is so powerful. I know a few smaller companies that have done this and prefer to not make headlines with sky high valuations that everyone knows are meaningless. This is a good thing.
is_it_worth_it_ 11y ago
Less VC money means less demand for engineers. Less demand for engineers means dropping wages. Higher levels of outsourcing and H1Bs also means dropping wages. American engineers though "scarce" will see a significant drop in wages, salaries in this field are going to collapse. They were being propped up by the government printing money, thus pushing up tech companies stock and pushing up VC money. With all that money no longer circulating, we will see wages go down.
- joe_the_user 11y ago
  As you say, this entire situation has been supported by massive infusions of printed money intended to support the economy dating back from the last collapse. And the massive bailout followed by quantitative easing/money-printing was already touted by Bernanke in his helicopter speech. Which is to say that one can't imagine any response to the present embryonic crisis other than even more money being thrown at the problem. And it seems like this money restore the status quo even as the 2007+ money didn't restore the previous quo. Rather the primary trends - printed money concentrating into the hands of the already wealthy, seems likely to simply accelerate. How long can the circus keep going? It might collapse at any moment yet I don't think anyone knows for sure.
  - laotzu 11y ago
    Even though the vast majority of monetary transactions are done electrically, it is still at heart a paper-based system built upon the constraints and assumptions of the paper/print medium that has dominated for the past ~500 years. "It is part of the age-old habit of using new means for old purposes instead of discovering what are the new goals contained in the new means."[1] I'd imagine the house of cards won't come tumbling down until a viable electric alternative outcompetes the legacy system. The old goals of the Federal Reserve system are primarily: 1. Maximize employment 2. Stable prices 3. Low interest rates These goals are no longer applicable in the new electic age of automation and ephemeralization. [1] Marshall McLuhan, The Medium is the Massage
    - joe_the_user 11y ago
brianmcconnell 11y ago
21 year SF resident here. I was here for the dot com bubble, and the smaller "multimedia" boom in the early/mid 90s. I think what is unfolding is a shift away from consumer businesses and back to boring business to business services. The latter tend to have more predictable cash flow (which ironically is a handicap when VC money is flowing to "viral" consumer businesses that can paper up their growth). B2B services whose customers are not linked to the local tech economy should do just fine. It might be harder to raise money for a while, but that's good too, it'll weed out the weaker companies. OTOH, consumer companies that already have ten years of rapid growth priced into their valuation are pretty screwed. Hard to see where they avoid some really painful and damaging adjustments. And a word of advice for workers. If you are at all unhappy with your job, or suspect that your company is vulnerable to a downturn, now is a good time to start looking around for something you'll be ok with for a couple years. Once companies start laying people off in larger numbers, it will get ugly (maybe not 2000 ugly, but it won't be fun).
- w1ntermute 11y ago
  This is exactly right - the two categories of businesses that will face hardships are: - Consumer tech startups that have only produced revenue-free growth (ex: Dropbox and Evernote) - Startups selling to startups (ex: Mixpanel and Stripe, maybe Zenefits) On the other hand, a company like Airbnb may benefit from a downturn, as people look to save money on travel.
  - elevensies 11y ago
    As a subset of the 2nd category, I think ad-supported mobile apps are going to suffer, i.e. games, since most of them seem to be advertising for each other.
    - interesting_att 11y ago
      I would actually disagree. eCPMs on mobile have steadily been going up, but not because game companies have been spending unsustainably. eCPMs have increased because brands have slowly been moving in, there is better adtech/targeting, and because game companies have a higher LTV, hence can spend more. Many US-based mobile game companies have basically given up fundraising from VCs as a significant part of their strategy, because it became too difficult to do so post-Zynga's crash. Point is: If you're a ad-supported mobile app, can purchase users at an ROI+ rate, and know how to iterate productively, it sounds like you have weathered the storm. Mobile ad-supported companies will stay around (though they may trim workforces to ensure long-term viability).
sjg007 11y ago
In the event of a downturn I think Facebook could absorb a large amount of the laid off employees.
joshmaher 11y ago
If your a founder facing a fundraising struggle at the seed, bridge, or series A round I highly recommend you learn more about what your potential investors are thinking or need to know from entrepreneurs before they invest by reading more about the 20 different archetypes of investors. After a year of research, these different archetypes are identifies in my book Startup Wealth - http://amzn.to/1Jej8El http://amzn.to/1Jej8El
joshmaher 11y ago
If your a founder facing a fundraising struggle at the seed, bridge, or series A round I highly recommend you learn more about what your potential investors are thinking or need to know from entrepreneurs before they invest by reading more about the 20 different archetypes of investors. After a year of research, these different archetypes are identifies in my book Startup Wealth - http://amzn.to/1Jej8El http://amzn.to/1Jej8El

222 points by apsec112 11y ago

Huh. Is it finally starting? Overdue, if true. If not, I guess we'll keep waiting for the next hangover to catch up to us.

bovermyer 11y ago

On the face of it, this just appears to be a possible end of the VC bubble. I highly doubt that this means much for startups that are built solely with founders' capital.

hyperbovine 11y ago
All four of them...
forgetsusername 11y ago
>I highly doubt that this means much for startups that are built solely with founders' capital. You need to distinguish between startups (people starting their own business), and "startups" (VC funded technology companies of a certain model). I'm sure the former won't be nearly as affected as the latter.
castell 11y ago
What if many of your customers are VC backed startups?
- timrpeterson 11y ago
  That was like Yahoo in 2000. It's a problem.
rwmj 11y ago
Depends if you're selling advertising services, software or other shovels which are mainly purchased by VC-funded companies.
te_chris 11y ago
What about the multitude of startups whose main customers are other funded startups? And the agencies who are similar. Could get hairy.
- axx 11y ago
  That's kind of what the dotcom bubble was. Startups with only startups as their customers. All juggling fantasy money around until some investors wanted their money back.
  - signa11 11y ago
    > Startups with only startups as their customers. it was not just that there were startups which were feeding off of other startups. even big-name established companies e.g. sun, csco etc. were pretty deeply involved.
  - ams6110 11y ago
    A lot of it was actually startups with no customers to speak of at all.
- AngrySkillzz 11y ago
  Yeah, that's the part that I'm concerned about. All the companies providing development tools, SaaS, process management, education/training, staffing, etc. for tech startups are done for if investment collapses.

xiphias 11y ago

My favaurite part: "We're in a bit of a different bubble this time, the exuberance now has a foundation" as measured by market size and sales potential, he says. Sure, it's always different this time for a CEO who needs to keep hopes up for investors. Sales is crashing with the deflation that is coming. And also overvaluations are followed by undervaluations when the interest rates increase.

pistle 11y ago
"It's different this time." Said every time. Of course the details of the crashing waves are different, but the tide is the same every time.
- tomjen3 11y ago
  Yes it is said every time, until the last time when the rules really are different - one early summer when there really will be no more war in Europe, one cold november night when the Berlin Wall just opens, one fall when a scrappy little upstart in a colony forces the worlds biggest empire to leave, one december when Ireland was free, etc. Predictions about the future are hard.
- draw_down 11y ago
  Actually what people are constantly saying now is what you posted. It's to the point where if you suppose that everything is not an exact recurrence of the dot-com bust, you're seen as delusional. But everything can't be exactly the same as it was then.
AngrySkillzz 11y ago
In Schiller's "Irrational Exuberance," where he discusses bubble formation and deflation, he refers to it as "new era thinking;" the idea that even if the economics of the present seem crazy, it's totally going to work this time because we're in a new era. Things are different from what happened last time, really. The punchline is that basically every bubble that ever existed was characterized by new era thinking. Looking at it like a Bayesian, the presence of new era thinking is a high-confidence indicator that you're in a bubble.

jjoe 11y ago

Most startups have already priced this fundraising-drought in their previous fundraisers. Instead of raising exactly what they needed, they over-raised by double or tripple that. It's selfish in some way as it likely contributed to the negative sentiment and the high valuations. I think this won't be an acute bubble for incumbents but for early stage startups that need funds badly to keep the short runway clear.

MrBuddyCasino 11y ago
So while HN was still discussing whether or not there really is a bubble, startups already acted accordingly. This is an interesting disconnect to observe. Now did they over-raise because they were afraid of a bubble or did they know there was one? A pointless debate, probably.
- kasey_junk 11y ago
  There is no way to know if there is a bubble until after it happens.
bobby_9x 11y ago
This is usually bad for the founders, because if it sells for less than the valuation they received during funding, they will most-likely get nothing. The VC always get paid first. Founders either need to get out early, understand that their position will eventually be just an employee, or not take in more funding than the company is worth. It does, however, work out in the tiny chance that the company sells for way more than it’s valued worth.
forgetsusername 11y ago
>Instead of raising exactly what they needed, they over-raised by double or tripple that Do you have any evidence of this? On the surface, it doesn't even make sense. There are two sides to every transaction; are you claiming that the entrepreneurs could see the slide coming, and anticipated it, but the financiers didn't?
- 11y ago

StavrosK 11y ago

Wow, this article looks like it's pushing some agenda hard. They took one quarter that was pretty much the same for NA and Asia and much better for Europe as the comparable quarter in 2014 and use it to report "fundraising drops"? Looks to me like someone is trying to actually bring about fundraising drops by using spurious data. "Q4 2015 pretty much the same as Q4 2014, the sky is falling!"

blazespin 11y ago
Interest rates have finally gone up. Money has become 2x expensive. Everyone was predicting the bottom would fall out of tech when this happened.... and it happened. TBH, the fed should not have gone from 0.25 to 0.5 That was really really dumb. They should have gone from 0.25 to 0.3 or something. My guess if the bleeding keeps up, the Fed will have to do a rate cut. Should help things. Since I got downvoted, let me show the math: For an entity borrowing at fed funds rate, on 100B loan that is 250M to 500M annual payment after the hike. If it were 2.5% to 2.75% on 10B, that would be 250M to 275M. See the difference? Even a 50bp hike would just be 20% higher payments. If you're surviving at the edge of these loans, then doubling your payments could easily wipe you out.
- walterbell 11y ago
  Interest rates are expected to continue rising in 2016.
  - zwischenzug 11y ago
    It's interesting that Fed members have downplayed the recent volatility: http://uk.reuters.com/article/uk-usa-fed-dudley-idUKKCN0UT2JE http://uk.reuters.com/article/uk-usa-fed-dudley-idUKKCN0UT2J... '''"The short-term volatility is not something that worries me for monetary policy; it reflects market participants trying to make sense of global developments," Williams told reporters on Friday, adding that he sees no signs of distress or a weak economy in declining asset values, and is unsurprised that stock prices .SPX would decline as the Fed raises rates.''' That's a pretty clear signal that the Fed have knowingly and openly popped a bubble. This is going to be painful.

guylepage3 11y ago

I've been hearing more and more of the companies feeling the Series A crunch. This will lead to many Seeds not making it into their next round. The times are changing for sure.

bluejekyll 11y ago
One great reason for public markets, is it takes away anecdotal evidence and you can actually have some real data backing up these claims. While this might be happening, do we have a method to track it with real data?

jondubois 11y ago

Sounds like things are going to get tough. I have mixed feelings about this. On one hand, I feel sorry for all those software devs (myself included) who might be out of a job in the next few months or whose salaries will start shrinking. On the other hand, it will be nice to watch some over-funded startups crumble to pieces and make room for more deserving (bootstrapped) newcomers.

dangerpowpow 11y ago

Data shown is based on 3 months.

mizchief2 11y ago

I knew this bubble was going to burst when Snapchat was offered $4b and they turned it down.

code4tee 11y ago

When the tide goes out you get to see who's been swimming naked. The tide is starting to go out..

VeilEm 11y ago

Great, can we stop calling it a bubble now? Like if there were an actual bubble in the bay area, bad trends like this would have popped it? The thing is things aren't really see-sawing. The pendulum isn't going to swing as hard as it did in 2000 as it would have done so already. That the technical companies in the bay area seems to be isolated from the hardships of the rest of the economy doesn't make it a bubble, it's simply a place with a different economic focus with different economic realities. I swear people around here actually sometimes seem to wish bad things would happen, as some kind of schadenfreude. We see these high valuation numbers being lobbed around as some kind of insult to good sense, but we're talking about just a few companies and in the grand scheme of the size of the economy in San Francisco, Palto Alto, Mountain View and San Jose these numbers are a tiny fraction of the overall system. The reality is that software is still eating the world, and more change and value to be derived therefrom is still to come: automated vehicles, robotics, smart appliances, VR, and a myriad of far less sexier technological innovations with sound economic value creation.

acdha 11y ago
You had a lot of company saying the same things in 1999. A central fallacy is assuming that because an idea seems inevitable the companies in that field now will be the ones doing it. Software is indeed eating the world but that doesn't mean that, say, those smart vehicles or robots will be made by a startup rather than GE or GM, or in one of the most expensive places in the world. Remember Kozmo.com? They're a fading memory but a lot of my neighbors get their stuff delivered by the same grocery chain which was there in 1995 who now has a great website, mobile apps, and a fleet of delivery drivers. This also has an important corollary for developers: unless you have a significant chunk of equity, never forget that even if your company is one of the successes your personal success does not inevitably follow. Most C-level managers see people like us as an expense to be minimized.
- icebraining 11y ago
  Software is indeed eating the world but that doesn't mean that, say, those smart vehicles or robots will be made by a startup rather than GE or GM, or in one of the most expensive places in the world. But is that what startups are doing? I mean, there's only one startup that has requested an Autonomous Vehicle Testing Permit in California - Cruise (YC W14) -, all the others are established companies. It's true there's a whole bunch of startups producing IoT trinkets, but those products are usually cheap and unambitious, not stuff that require large investments in R&D.

brightball 11y ago

"tech" is a bit broad. Programming startups are the most capable of have a very low operating budget with high growth, so the burn rates should be easier to minimize to get the most out of those investments. The tech startups that involve actual physical products with manufacturing, distribution, shipping, retail placement, etc are another story. It seems like we would be well served to have terms to differentiate for sake of headlines like this.

FussyZeus 11y ago

The companies that don't make it: CEO's fly away on golden parachutes sewn with the money they didn't earn, middle management goes on to other companies with an Impressive Name on Resume (+2 to hire-ability skill) added, and the engineers lose it all on the company stock they were promised could only go up and have to find a new source of income for the multi-thousand a month studio apartment they rented to get out there. (Yes I realize this is overly simplified and bleak, that's the point.)

cballard 11y ago
I've been wondering - in many startup companies, the engineers own all of the knowledge to run the company (documentation practices are discouraged by management because that's not "shipping"). Why don't we see more collective action? If the entire engineering staff walked, the company would be fucked, which gives them quite a bit of leverage. Meanwhile, the engineers can easily find other jobs since they're relatively in demand.
- scarmig 11y ago
  If only there were some kind of organization of workers that could organize collective actions. Like, walking out and withholding your labor... Maybe we could call it a workers unified organization? A unity?
  - Apocryphon 11y ago
    A guild.
    - walshemj 11y ago
      Which has some unfortunate conations in American industrial history.
      - Apocryphon 11y ago
        I was thinking of it in terms of online gaming.

at-fates-hands 11y ago

Nobody should really be surprised by this. People all over tech have been arguing about the bubble for some time. I see this as an early stage harbinger of things to come though. With the Fed raising rates, VC's already starting to hedge their bets, and friends of mine leaving startups to go back to stable corporate gigs, I see a shuffling of the deck, but nothing too major. I feel like this is the normal eight year tech cycle that is just coming back around again: - 1992 recession and crash - 2000 recession and crash - 2008 recession and crash

intopieces 11y ago
All election years, all resulted in change of ruling party. Is it a tech cycle, or just the people at the economic helm buckling down for changes in policy?

puranjay 11y ago

This comment from Tucker Max's article on why he stopped angel investing bears repeating here: > "But when you have a lot of money chasing all these great ideas, and you combine it with the fact that entrepreneurship has gotten sexy in the last few years and become the “in” thing for a certain crowd, what you end up with is a huge number of people starting companies who have no business at all doing that." http://observer.com/2015/08/why-i-stopped-angel-investing-and-you-should-never-start/ http://observer.com/2015/08/why-i-stopped-angel-investing-an... I've said this to tons of people privately and publicly: entrepreneurship has become the new "I'm working on a novel". Lots of people have good ideas in their heads. That doesn't mean they should be building businesses on them. Some people are just not cut out to be entrepreneurs. And once the money dries up, these will be the first ones to go. The rest will continue building businesses because they can't really think of doing anything else.

orthoganol 11y ago
I think anyone who follows the advice of Tucker Max, America's biggest no-apologies frat bro, should not be taken too seriously. You still got it wrong for who you should be investing in: People who have a vision driving them to the core, who can't imagine not seeing their change happen. People who just want to start businesses "because they can't really think of doing anything else", are people who just want the lifestyle or equate it with personal freedom or something. They don't have much of an edge.
- woah 11y ago
  Is that like, a double ad hominem?
- Disruptive_Dave 11y ago
  > You still got it wrong for who you should be investing in: People who have a vision driving them to the core, who can't imagine not seeing their change happen. This is a start, but only a start. I've run into plenty of these "types" who don't have the skills or experience to launch a successful startup. The question shouldn't just be "Do I have the passion for this?" but also "Do I have the abilities to execute this?"

sholanozie 11y ago

American investors would be well advised to look north of the border...

MAGZine 11y ago
Very true. With the low Canadian dollar, investment dollar will go way, way farther. Like probably 50% farther, given lower wages compounded by the lower dollar.

peter303 11y ago

Pretty accurate. Most of the so-called unicorns are overvalued by a factor of four or so through accounting tricks. The article is correct that it is not silly as the late 1990s. Many startups now actually have working products, revenues, and sometimes profits. Many 1990s companies lacked those.

debacle 11y ago

People shouldn't see this as negative signaling for tech, but rather positive signaling for other parts of the economy.

Ologn 11y ago

20 years ago, if you wanted to ship software, or run a web server on the Internet, you needed some amount of capital. I worked at one of the cheaper local Internet Service Providers in 1996, and with a 3-year contract we gave you 1 gig of traffic a month on your colocated box at 10 MB port speeds for $540 a month - you provide your own box. Now for $10 a month, Linode provides me with the VPS box, I get 2 TB transfer, 125MB port speed, and the plan is not yearly or monthly or even daily, but hourly. There are two app stores I can put apps out with, with a variety of monetization schemes. I know for Android that over 1 billion people use their Android device at least once a month. There is also the web. There has been an explosion of open source software, and improvements on existing software - Linux, Apache, and MySQL. Or Nginx and MongoDB. Plus free Java application servers, or Python, PHP or Javascript web frameworks. There is Paypal and Stripe. Companies have gone from renting offices to subleasing to co-working to virtual offices. If you can program (or can install software with minimal programming skill and have some creative ideas and will hustle), there has never been a time when fundraising has been less important, because you do not need money to get your product to market. This being the case, worrying about getting a job and layoffs makes less sense. Because nowadays you don't need an office, a shrink-wrapped software deal with computer stores, a handful of leased colo'd servers and IT team to support them. You can start with much less, get to where you're making a minimal living, and then go from there. After that you can take a job, or take seed/VC money if you want, but you don't have to. I have seen this come to pass, and I have heard many luminaries in Silicon Valley say the same thing. Of course, in good times it is less work and easier to get a job making low 6 figures programming, than it is to make $30k a year on your own bootstrapped business, never mind pushing that up to where it grows to $100k. It is a lot of work, as many have said. It is doable like never before though.

gist 11y ago
Yep. 1996 T1 line, web server alone was something like $7500 (in '96 dollars) CSU/DSU, router, server software was Netscape (paid for that), rent, then you had to actually spend a great deal of time acquiring customers (traditional newspaper advertising..)
randycupertino 11y ago
Yeah but then you can't cash out the VC money and get yourself a condo and a ferrari! http://www.businessinsider.com/secret-may-be-pivoting-to-a-startup-incubator-2015-3 http://www.businessinsider.com/secret-may-be-pivoting-to-a-s...

yggydrasily 11y ago

Biotech included: http://www.businessinsider.com/venrock-partner-bryan-roberts-on-the-2016-biotech-stock-market-2016-1 http://www.businessinsider.com/venrock-partner-bryan-roberts...

Kluny 11y ago

Are we taking USA Today seriously now? Why, please?

nemo44x 11y ago

""Companies will still raise funding, but at lower valuations," says Arianna Simpson, a Silicon Valley-based investor." I wonder if this means companies have gotten wise to the bad deals they were signing just to get a high valuation and are agreeing to lower valuations but not giving up preferred stock that is so powerful. I know a few smaller companies that have done this and prefer to not make headlines with sky high valuations that everyone knows are meaningless. This is a good thing.

is_it_worth_it_ 11y ago

Less VC money means less demand for engineers. Less demand for engineers means dropping wages. Higher levels of outsourcing and H1Bs also means dropping wages. American engineers though "scarce" will see a significant drop in wages, salaries in this field are going to collapse. They were being propped up by the government printing money, thus pushing up tech companies stock and pushing up VC money. With all that money no longer circulating, we will see wages go down.

joe_the_user 11y ago
As you say, this entire situation has been supported by massive infusions of printed money intended to support the economy dating back from the last collapse. And the massive bailout followed by quantitative easing/money-printing was already touted by Bernanke in his helicopter speech. Which is to say that one can't imagine any response to the present embryonic crisis other than even more money being thrown at the problem. And it seems like this money restore the status quo even as the 2007+ money didn't restore the previous quo. Rather the primary trends - printed money concentrating into the hands of the already wealthy, seems likely to simply accelerate. How long can the circus keep going? It might collapse at any moment yet I don't think anyone knows for sure.
- laotzu 11y ago
  Even though the vast majority of monetary transactions are done electrically, it is still at heart a paper-based system built upon the constraints and assumptions of the paper/print medium that has dominated for the past ~500 years. "It is part of the age-old habit of using new means for old purposes instead of discovering what are the new goals contained in the new means."[1] I'd imagine the house of cards won't come tumbling down until a viable electric alternative outcompetes the legacy system. The old goals of the Federal Reserve system are primarily: 1. Maximize employment 2. Stable prices 3. Low interest rates These goals are no longer applicable in the new electic age of automation and ephemeralization. [1] Marshall McLuhan, The Medium is the Massage
  - joe_the_user 11y ago

brianmcconnell 11y ago

21 year SF resident here. I was here for the dot com bubble, and the smaller "multimedia" boom in the early/mid 90s. I think what is unfolding is a shift away from consumer businesses and back to boring business to business services. The latter tend to have more predictable cash flow (which ironically is a handicap when VC money is flowing to "viral" consumer businesses that can paper up their growth). B2B services whose customers are not linked to the local tech economy should do just fine. It might be harder to raise money for a while, but that's good too, it'll weed out the weaker companies. OTOH, consumer companies that already have ten years of rapid growth priced into their valuation are pretty screwed. Hard to see where they avoid some really painful and damaging adjustments. And a word of advice for workers. If you are at all unhappy with your job, or suspect that your company is vulnerable to a downturn, now is a good time to start looking around for something you'll be ok with for a couple years. Once companies start laying people off in larger numbers, it will get ugly (maybe not 2000 ugly, but it won't be fun).

w1ntermute 11y ago
This is exactly right - the two categories of businesses that will face hardships are: - Consumer tech startups that have only produced revenue-free growth (ex: Dropbox and Evernote) - Startups selling to startups (ex: Mixpanel and Stripe, maybe Zenefits) On the other hand, a company like Airbnb may benefit from a downturn, as people look to save money on travel.
- elevensies 11y ago
  As a subset of the 2nd category, I think ad-supported mobile apps are going to suffer, i.e. games, since most of them seem to be advertising for each other.
  - interesting_att 11y ago
    I would actually disagree. eCPMs on mobile have steadily been going up, but not because game companies have been spending unsustainably. eCPMs have increased because brands have slowly been moving in, there is better adtech/targeting, and because game companies have a higher LTV, hence can spend more. Many US-based mobile game companies have basically given up fundraising from VCs as a significant part of their strategy, because it became too difficult to do so post-Zynga's crash. Point is: If you're a ad-supported mobile app, can purchase users at an ROI+ rate, and know how to iterate productively, it sounds like you have weathered the storm. Mobile ad-supported companies will stay around (though they may trim workforces to ensure long-term viability).

sjg007 11y ago

In the event of a downturn I think Facebook could absorb a large amount of the laid off employees.

joshmaher 11y ago

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joshmaher 11y ago