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Your "Investment Grade Beanie Babies" are crucial to the Silicon Valley ecosystem right now. When these carefully orchestrated valuation maneuvers meet liquidi

Your "Investment Grade Beanie Babies" are crucial to the Silicon Valley ecosystem right now. When these carefully orchestrated valuation maneuvers meet liquidity (and in a lot of cases some liquidity comes pre-IPO), a lot of the money is invested back into the Valley. Those with it become angel investors and limited partners in venture funds, or start and fund their own companies, perpetuating the cycle. This in and of itself isn't a bad thing, but anybody living and working in Silicon Valley should contemplate what will happen when the music stops. Even if you're just an average engineer with no real exposure on the equity side, less capital chasing opportunity will lead to fewer startups, and less heavily funded startups. Fewer startups competing for talent will mean fewer jobs and downward pressure on wages. Obviously, major companies like Google and Facebook aren't going anywhere any time soon, but the $1xx,000/year early-stage startup jobs are going to be harder to find, especially at the junior end of the market, and the days of being able to jump from six-figure job at unsustainable startup to six-figure job at unsustainable startup in a matter of a few days or weeks will be a thing of the past for most. This could happen two months from now; it could happen two years from now. But it will happen. Given the valuations we're seeing and the increasing difficulty with which the Fed is maintaining the status quo, I think one has to be prepared for the possibility that we're closer to the end of the cycle than we are to the beginning.

api 12y ago
If you own property in the SF Bay area that you purchased or mortgaged at current valuations, you're definitely exposed there.
crapshoot101 12y ago
That's definitely fair, and its one of the main reasons I try explaining to non-tech friends why many (not all) of these valuations are complete and utter BS - they are options, not real equity purchases (note: some companies with $multi-B valuations are only selling common equity - those are closer to being real). Ironically, this is especially true of smaller startups that are raising at $100-$200M valuations - the fundementals don't uphold that valuation, and the "sell to Google / Yahoo / FB" approach only works for a few (and is a lot harder than the $10M acquihire.
otakucode 12y ago
No, most of the money doesn't go back into the Valley. It goes into the financial services industry and it stays there. Forever.
- 7Figures2Commas 12y ago
  First, I never wrote that "most" of the money is reinvested in the Valley. I wrote that "a lot of the money is invested back into the Valley." Need evidence? Take a look at any of the increasingly common million-dollar seed stage party rounds and who the investors are. It's not cattle ranchers from Texas. As for the financial services industry ("Wall Street"), this doesn't exist in a separate bubble. Who led Uber's recent $1.2 billion round? Fidelity. Who else participated? Blackrock and Wellington Management.
chiph 12y ago
Their expectations will probably lag reality, no question. A wise developer would be saving a decent percentage of their paycheck to let them ride out a future downturn. 2008 was not an isolated event - such things happen throughout history (Dutch tulip bulbs in the 17th century, for example), so being prepared is a good idea. I get that investment money pretty much is the economy in SV presently. But I definitely have major concerns that so much money is being paid for so little.
- 7Figures2Commas 12y ago
  > But I definitely have major concerns that so much money is being paid for so little. Not enough people think about this. The ease with which multi-million dollar valuations are obtained in the Valley is incredible. Heck, Y Combinator, which offers a six figure valuation to entrepreneurs, many of whom have no real-world experience and nothing more than an idea, is considered a "bad deal" by many. Outside of the Valley, the market is more like Shark Tank, where you'll struggle to get anywhere close to a million-dollar valuation without real traction (read: revenue and profit). Silicon Valley's easy money supports a lot of high-paying jobs. If entrepreneurs in the Valley didn't have the ability to raise six and seven figures of capital so easily, and without giving up 100% of their businesses, there would be a lot fewer developers with a year or two of Ruby on Rails experience making $120,000/year.
  - judk 12y ago
    6 figure valuation is in no way inflated. When you get a job offer with a 4 year stock vest in Microsoft, that's a 6 figure valuation on your contribution to Microsoft.
    - 7Figures2Commas 12y ago
      So seed stage valuations should be based on the salary a founder could earn working at a large company over the course of half a decade? Show me an investor who invests on that basis and I'll show you somebody who is likely to lose his or her money. Starting and growing a business is hard. If it was easy, everybody would do it. There are tons of people who are capable of thriving and creating value as an employee of a large company but who can't run a business. That's not a knock on them, it's just reality. We're spoiled in the Valley, especially during boom times, and it's helpful to spend some time outside of the Valley. Like I said, Shark Tank is a lot closer to reality for most people in most places. Six and seven figure valuations aren't handed out like candy on Halloween. They are earned through meaningful traction.

api 12y ago

If you own property in the SF Bay area that you purchased or mortgaged at current valuations, you're definitely exposed there.

crapshoot101 12y ago

That's definitely fair, and its one of the main reasons I try explaining to non-tech friends why many (not all) of these valuations are complete and utter BS - they are options, not real equity purchases (note: some companies with $multi-B valuations are only selling common equity - those are closer to being real). Ironically, this is especially true of smaller startups that are raising at $100-$200M valuations - the fundementals don't uphold that valuation, and the "sell to Google / Yahoo / FB" approach only works for a few (and is a lot harder than the $10M acquihire.

otakucode 12y ago

No, most of the money doesn't go back into the Valley. It goes into the financial services industry and it stays there. Forever.

7Figures2Commas 12y ago
First, I never wrote that "most" of the money is reinvested in the Valley. I wrote that "a lot of the money is invested back into the Valley." Need evidence? Take a look at any of the increasingly common million-dollar seed stage party rounds and who the investors are. It's not cattle ranchers from Texas. As for the financial services industry ("Wall Street"), this doesn't exist in a separate bubble. Who led Uber's recent $1.2 billion round? Fidelity. Who else participated? Blackrock and Wellington Management.

chiph 12y ago

Their expectations will probably lag reality, no question. A wise developer would be saving a decent percentage of their paycheck to let them ride out a future downturn. 2008 was not an isolated event - such things happen throughout history (Dutch tulip bulbs in the 17th century, for example), so being prepared is a good idea. I get that investment money pretty much is the economy in SV presently. But I definitely have major concerns that so much money is being paid for so little.

7Figures2Commas 12y ago
> But I definitely have major concerns that so much money is being paid for so little. Not enough people think about this. The ease with which multi-million dollar valuations are obtained in the Valley is incredible. Heck, Y Combinator, which offers a six figure valuation to entrepreneurs, many of whom have no real-world experience and nothing more than an idea, is considered a "bad deal" by many. Outside of the Valley, the market is more like Shark Tank, where you'll struggle to get anywhere close to a million-dollar valuation without real traction (read: revenue and profit). Silicon Valley's easy money supports a lot of high-paying jobs. If entrepreneurs in the Valley didn't have the ability to raise six and seven figures of capital so easily, and without giving up 100% of their businesses, there would be a lot fewer developers with a year or two of Ruby on Rails experience making $120,000/year.
- judk 12y ago
  6 figure valuation is in no way inflated. When you get a job offer with a 4 year stock vest in Microsoft, that's a 6 figure valuation on your contribution to Microsoft.
  - 7Figures2Commas 12y ago
    So seed stage valuations should be based on the salary a founder could earn working at a large company over the course of half a decade? Show me an investor who invests on that basis and I'll show you somebody who is likely to lose his or her money. Starting and growing a business is hard. If it was easy, everybody would do it. There are tons of people who are capable of thriving and creating value as an employee of a large company but who can't run a business. That's not a knock on them, it's just reality. We're spoiled in the Valley, especially during boom times, and it's helpful to spend some time outside of the Valley. Like I said, Shark Tank is a lot closer to reality for most people in most places. Six and seven figure valuations aren't handed out like candy on Halloween. They are earned through meaningful traction.