Market's across the board are doing pretty bad this month - It would be interesting to how bad tech is doing relatively to oil futures and other commodities.
Why is it important how tech is doing relative to other unrelated markets?
Edit: I don't know why I'm being downvoted for asking a question. I've many times seen a stock sector performance chart (I don't know the technical name) with most of the market red and tech lit up bright green.
Because all markets are really related in some ways, and you can't judge performance without looking at alternatives. Sometimes, a sector goes down, or up, by itself, and then we can expect that the reason for the price change has something to do with that sector. The same thing happens when looking at companies: If Home Depot is down 3% but Lowes is also down 3% and the SP500 is down 5% on average, it's a likely explanation that the tumble has nothing to do with HD's outlook. Heck, by some measures, the home improvement retail sector would be doing better than average! The same thing happens when the market is on the way up: Looking at a company or a sector in isolation doesn't let us even speculate on the reasons of the price change.
In a site like this, where we care specifically about the health of tech, claiming that the sky is falling for our sector without looking at other sectors would be folly.
You can click two boxes on maybe 300 different financial websites and see this data. Which doesn't apply to the "unicorn" situation anyway.
Volatility appears (and is fed back) as people re-evaluate risk vs reward.
People who held unfashionable Microsoft stock made more money than people who got in on the last two Tumblr rounds over the same time period. Early investors are no longer just technology zealots who made $300 million 10 years ago -- actual financial companies are involved now.
Also early-stage startup investing is a drop in the bucket of the greater market. If people are even bothering to move their money out, that's an even more significant indicator.
If there is a tech bubble that bursts, I don't see how much of middle America would be affected. "So, the people in SV can't get 1-hour grocery delivery any more. How does that affect me again?"
It's a leading indicator. Gas prices are unsustainably low, tech startups are in trouble, China is in the midst of an economic crisis, and US stocks have been very volatile for most of this year. These are all signs we might be due for a correction.
The limited partners who give VCs money include managed pension funds, college endowments, and others that very much relate to middle america. It's not all the VC's money that is being burned. They get a 2% annual rake and they can usually ponzi scheme their way to profitability through existing relationships or getting out profitably at the initial IPO price of a company (very rare these days)
The biggest one is that people all across America are invested in tech companies. Pension funds are big investors in PE and VC funds, as well as investors in publicly listed equities. A tech bust would put further strain on already strained public pension systems across the US, and could even result in something like a federal government bailout if those systems cannot bear the additional burden (i.e. taxpayers everywhere foot the bill).
I would be very surprised if there were any pension funds out there with such heavy VC allocations to the point where a downturn would encourage a federal bailout. Do you know of any?
It's just one more straw. I don't think there's a single class of investment in any pension fund that would alone make a bailout necessary. But I wouldn't be at all surprised to hear that a tech sector bust would cost several funds upwards of 10%. Add a few more failures of that kind to the mix, and we'd be talking bailout.
VC and PE? 5%. But add to that exposure to the publicly listed tech sector, for aggressive funds, that could be as high as 20%. Then there are secondary effects like a downturn in Bay area real estate.
PE is going to have completely different dynamics as far as industry allocations. I would love to see an example of a pension fund with a 20% allocation to tech. And if you're talking about a federal bailout, this is likely going to be a public pension fund which makes it even more unlikely.
Middle America has nothing to do with Silicon Valley in the same way they have nothing to do with collateralized debt obligations and credit default swaps. Most people aren't directly invested in anything complicated - except perhaps at arms-length if their pension fund manager has brought into it.
Despite not being invested in complex derivatives, middle america sure noticed the banking crisis.
This is because it was largely the portfolios supporting middle America that got tarnished by the banking crisis. With the exception of a few notable coastal markets, middle America had the most to lose, which is rather sad, because they were already ravaged enough as it is by the steel mills and manufacturing jobs leaving its many once-prosperous towns and cities.
I believe you should invest in the fields that you work in and understand (as long as you are investing long-term).
Your time and expertise in these areas will give you better insight that most other investors will not have. See Warren Buffett's "circle of competence".
Exactly. Not only were many employees invested in the same sector, their nest-eggs were invested in their employer, which is (from a safety perspective) even worse.
'Course, that invites some comparisons to equity in startups...
The worst kept secret in Silicon Valley is that 90+% of the so called 'unicorns' are just donkeys with a plastic cone on their head.
It long since stopped being about innovation and disrupting markets and became mostly about shuffling piles of imaginary units around so a select few could get rich. Sadly the pawns in this whole game will be all the employees holding options that are soon to be worthless... and who were convinced to take those options in exchange for taking a proper cash salary.
The only good thing this time around is that (unlike the last big Silicon Valley implosion) most of these companies are still private. So it will be really messy for some private investors and the greater San Francisco area is going to have a mess on its hands, but the broader US economy isn't going to get impacted as much. The stock market of 2015 also isn't propped up by bloated tech stocks in the way it was in 1999-2000.
Do you have any data to support these statements? This reads as FUD as-is. Not saying that's the case, I'm not in the startup scene per se, but on the face of it, this seems overly pessimistic.
The OP is suggesting there is a trend of sorts. My interpretation is that she/he is suggesting there is something akin to a "pump and dump" scheme going on in SV right now. That's a bold accusation. I've not seen evidence of this, but perhaps I'm missing something here.
What I have seen evidence of is a slowing economy and a shift towards more conservative investments. It happened in the early 2000s, in 2008, and it seems to be happening now.
Pump and dump implies that it is being done on purpose. I think what we have here is a kind of functional pump and dump. Most or at least many of the participants are sincere but there are some who get paid either way. They are just siphoning off some of the cheap money all the central banks have been printing
Excited might not be the right word, but there's no question a lot of people are encouraged to see this happening. That's not schadenfreude but rather for the tech sector to have long term health and innovation built around solid businesses with real revenues and profits the silliness of the last few years needs to stop.
It will have a cleansing effect for our ecosystem, much as forest fires do for theirs. The arrogance and irrational exuberance that has become commonplace among founders and VCs will be curtailed, and rent & traffic may become somewhat manageable.
And lots of engineers will be out of work (or working for much less pay, in much more traditional organizations)...at least if the last bubble pop is any indication.
Which is certainly unfortunate, but it has to happen sooner or later. The whole "STEM shortage" hysteria (see FWD.us[0]) is nothing more than a shameless attempt to drive down engineering wages by increasing enrollment in CS programs, pumping up H1B allocations, and wage fixing[1]. Tech execs and investors love to complain about having to pay six figure salaries to the engineers doing all the real work, all while carting home hundreds of millions themselves in just severance pay[2], despite running companies into the ground, often because of their inability to perform basic management tasks correctly[3,4,5].
Any productive activity is a sum of the 3 factors of production: Land/Natural Goods + Labor + Capital
If you increase any one of these factors, you get more production (i.e. more prosperity). For instance, Capital: if Chinese/Russian billionaires decide to invest all their money in American companies in America, then it would result in huge economic growth.
Similarly Natural Goods: If prices of oil fall drastically, or lots of natural goods (even land) are discovered, then again there will be increased production of goods (i.e. more prosperity).
Finally, Labor: if labor prices fall drastically, or labor force is increased, again more production will happen. Prosperity will ensue.
The first two makes sense to most people, but somehow the third point doesn't because most people are part of the labor force therefore emotions kick in. The simple logic you're demonstrating is a childish whining:
> Tech execs and investors love to complain about having to pay six figure salaries to the engineers doing all the real work, all while carting home hundreds of millions themselves in just severance pay<
The whole job of tech execs and investors is to increase production. Acquiring capital for cheap (lower interest rates) would do the job, acquiring land/natural goods for cheap (like moving office to a cheaper part of the town) would also do the job, and finally getting cheap labor would also do the same thing.
Complaining against a businessman trying to find cheaper labor is like complaining against the QA for trying to find bugs in your code.
> if labor prices fall drastically ... more production will happen. Prosperity will ensue.
> somehow the third point doesn't because most people are part of the labor force therefore emotions kick in. The simple logic you're demonstrating is a childish whining
Next time a bubble pops and I get a 30% pay cut I will take comfort in the fact that the prices of goods & services around me will soon fall by >30% to compensate (because of all the prosperity) thus preserving my quality of life and proving that my concerns were merely "emotions kicking in" and "childish whining" rather than predictions that the terms of my social contract were about to get dramatically worse.
The post I was responding to was about how companies want relaxed immigration rules because they make more profit.
My post was responding to the fact that increased immigration (of high tech or white collar, both) helps people in general by increased prosperity (nothing in this post was about an emotional outburst of the conditions and welfare of immigrants).
You respond by talking a non-sequitur about a bubble. It doesn't make any sense.
Funny thing is, what you wrote rhetorically is exactly what happens in a crash.
As a consumer you don't care whether your salary is $100K or $50K, what matters is what you can buy from your salary. If you can buy a home on mortgage on $50K salary and save for your kid's education, but can barely pay rent and groceries on $100K then the $50K Salary is higher 'real salary' (albeit a lower 'nominal salary').
Any recession is only cleared when real wages fall faster than the real prices of the goods (because only then businesses can be profitable again).
According to free market economists, let wages and goods of prices fall. This will eventually clear the market.
According to non-free market economists (which includes Keynesians and monetarists) increasing the money supply is the solution because it lowers the real wages (albeit keeping the nominal wage high). So at the end of a recession you still make same salary as you did at the start of the recession, but you can afford fewer goods now. This ALSO clears out the market and businesses become profitable again.
Introduction of educated immigration labor would actually result in faster recovery (just like lowering of interest rates would make businesses more profitable).
You understand how the economy as an aggregated whole behaves. What you're ignoring -- intentionally or not -- is the other face of economics, the hairy & ugly one, distribution. The way that any given person experiences the economy is a product of prosperity (as you put it) and distribution. In this day and age the volatility in distribution reliably dwarfs trends in overall prosperity. There are a large number of individuals who will be hurt by this (or any other) shift many orders of magnitude more than they will be helped. You invoke a collectivist argument to defend these groups' suffering on the basis that it will benefit the whole according to the economic dogma you hold dear.
Fair enough. You might even be right. Even if one were to assume that you are, however, why does it follow that those involved should be happy with their fate as a stepping stone for society? That their complaints are nothing but "childish whining"?
Furthermore, the fact that an action creates winners and losers is far less open to interpretation than its ultimate connection to the progression (or regression) of society. If you substitute faith in one system for faith in another then the same argument you made earlier has been made in a million other contexts to defend acts that you would consider unconscionable. In this context "It's for the best, honest!" is a weak argument regardless of how convinced you are that your model of ultimate benefit/detriment to society is correct.
You say that, but a huge proportion of working software engineers have almost no idea how to be a professional and do the job correctly. Which I used to be all about, since I cleaned up their messes at inconvenient rates.
The problem isn't a shortage of engineers, it's a shortage of quality engineers who don't subtract more value than they produce.
> working for much less pay, in much more traditional organizations
When the tech bubble crashed in 2000, and I moved from a startup to a Fortune 500 company, my job became less enjoyable, but my salary did not go down. Then again, I began looking for a job in April 2000, as I had been anticipating a correction - some people with no college and no non-startup experience rode it out to 2001 at their startup, were laid off and had trouble finding work.
Being based in a big job market outside the Bay area where I am rooted and networked was also helpful in 2000.
One difference between now and 2000 - the only real capital expense to start many software businesses nowadays is payroll. It is much less expensive to start a business. This may affect things.
I actually got a small pay increase when I moved to Big Corp. But I think that had more to do with luck than anything else. Lots of my colleagues took pay cuts and/or dealt with wage stagnation for a fair bit of time afterward.
The ones that were really hit were new grads who had accepted jobs that went away before they got there or had only been on the job a couple of months.
Another big difference (I hope) was that 9/11 came along right after and changed things in a much more macro scale. Don't know how much we can draw from that.
That's not a consistent scenario with what happened last time the tech bubble burst. Believe it or not most folks in the Bay Area don't work for tech startups. It would take a combination of a bunch of market forces to drive housing prices down here.
Bubbles are incredibly inefficient, they send huge amounts of very valuable resources (money, but also things like people, creativity, press attention) into situations where they are ultimately squandered. They are like wars, they can waste the promise of an entire generation, never to be recovered.
Nobody wants to see a collapse for collapse's sake, but there is quite a bit of social good in avoiding or deflating an asset bubble, be it in residential mortgages or late stage technology companies.
As if the government does a better job managing money, which is why the concept of 'exit' is appealing to some in Silicon Valley. New technologies emerge from bubbles. The only way to do away with the boom bust cycle is to do away with capitalism itself.
>To me, it seems like some people are looking forward and are excited about a silicon Valley collapse.
There is absolutely this attitude present. I've heard it both in the Midwest and out west in San Francisco and Oakland both.
I can even understand it to an extant, because although I am in the not-a-bubble camp, I am annoyed when I see media and others acting like "Uber for pizza" is a mind-blowing idea.
I am. Maybe rents will stop going up. Maybe the Harvard MBAs will take off their red hoodies and go work on Wall Street or maybe for old companies that make stuff in the Midwest
> It long since stopped being about innovation and disrupting markets and became mostly about shuffling piles of imaginary units around so a select few could get rich.
As someone mentioned on another thread a day or two ago, just look at the latest YC batches, particularly the IT companies. They're largely "X for Y" sorts of companies that already have significant traction. It's unlikely that the Airbnb founders would be able to get into YC in 2016.
> Sadly the pawns in this whole game will be all the employees holding options that are soon to be worthless... and who were convinced to take those options in exchange for taking a proper cash salary.
And on the other side, once the bubble bursts and the options are exposed as worthless at many of these companies, it's going to be much harder for startups to recruit employees with equity compensation, which will only make it more difficult to control burn rates.
Exactly - good entrepreneurs/companies can raise money and hire employees in any capital climate. It's the companies that lack basic building blocks, like a mission that resonates with employees on a non-financial level and sustainable sources of revenue, that will go under.
Square is a great example of a company that people joined for all the wrong reasons. Not only are they incredibly unfocused when it comes to their mission, products and customer base, but the people joining it seemed to be doing so out of a mercenary instinct triggered by an expectation that Jack's second company would of course be a hit.
And Andreessen left Loudcloud in 2005, well before the final Opsware exit, to found his third company Ning (which he never talks about), which ate $134M in funding, only to be acquired for $150M.
If you actually look at what Andreessen did at Netscape, he was little more than the pawn of Jim Barksdale and Jim Clark, who trotted him out as the "boy genius" every time they needed to do some PR or developer/community outreach. The vast majority of the code was written by the far better software engineers than Andreessen who joined the founding team (Lou Montulli, Jamie Zawinski, Ramanathan Guha, Aleksandar Totic, and more).
Other than that, I'm not even sure why Clark approached Andreessen to co-found Netscape. There were multiple people who worked on NCSA Mosaic, which was itself based on open standards (and the source could be obtained). And Andreessen didn't really believe in its commercial potential at first - he moved to SV to work at Enterprise Integration Technologies, only to quit his job after a few months, when Clark emailed him.
I guess there is just a limited solution space for the current problems, and many possible points have been farmed at a certain point of time. Until legislative or technologic changes come in, the eco-system will go more and more into bubble mode.
Please explain the downvotes. Sure, the comment was a quick shot comment about 'X for Y' ventures, but I do indeed guess that many current IT unicorns are not straying so much into bleeding edge technology, but are following a market grab/lockdown strategy on platforms (www/mobile) that are fairly well developed. And I do not want to claim that any of those approaches are bad - people seem to speculate that they can make a lot of money from them.
> and the options are exposed as worthless at many of these companies, it's going to be much harder for startups to recruit employees with equity compensation, which will only make it more difficult to control burn rates.
As someone who lived through TechBubble v1: People said exactly the same thing back then. There's always a new batch of graduates with dollar signs in their eyes who believe "it's different this time".
I'm trying to coin the term "portmanco" for these companies. Just like a portmanteau in linguistics simply mashes two words together, a portmanco just mashes two familiar companies together and calls it a new one.
> mashes two familiar companies together and calls it a new one.
Hasn't that always been what "merger" meant? :p
Edit: My joke is that corporations have been making dumb amalgamations for many many years now. Anybody remember "Mr. Sparkle" from The Simpsons, where two companies in fish vs. heavy-industries combined to sell detergent? That was amusingly-relatable even when it came out 18 years ago.
Wait, I thought he said two companies merged, not a company plus an arbitrary concept. (Or is there really a company just named "Dogs" involved in canines?)
That's disturbingly like what I hear film industry people complaining about for nigh-on decades now. Script pitches are too commonly derivatives starting out with "like X [already super-successful film], but|with|and|except|etc. Y [another successful film]".
The general explanation for this phenomena that I've read bandied about (but have no idea of its veracity as I'm just an industry outsider): financing films has gotten so expensive and risky, that only proven models of making money are commonly given green lights. It's considered innovation at the financial level to mix-and-match proven models, because that's all the risk that is willing to be absorbed. What the purchasing side actually wants is too opaque/non-linear/unpredictable/take-your-pick-of-explanation for the big name finance people to consistently figure out what really is innovative. That's probably why YC attracts a lot of attention from the big names, because they hold out the promise of piercing that veil.
I'll be a little bit more cynical than you, and give you my opinion. In the movie industry[1], just like with the start-up industry, we see these types of behaviors pop up when the company or the art stops being the object of the creators affections, but instead it's the money or power. It's the "MBA" attitude that gets railed against on HN, where the only reason these people participate is to cash out, or in some cases with people who are already rich, they want to feel like they're important.
Now, these people are plenty smart. They usually have gotten great educations and whatnot, but they lack the drive to be motivated by a love of doing this great thing, rather than accumulating some money. Some of the greatest creations in tech were not motivated by money at all. When a great film maker goes to bed or on vacation, he's sometimes kept awake with ideas on how to make a better film or pondering a new concept. He takes no real vacations, because he loves his art so much that he never even wants to escape it. The money-driven type doesn't. When they go on vacation, they escape. And professionally, they tend take the easiest path to their destination. And the easiest path to cashing out is to look at how other people became successful, and make a small deviation from their path then copy or exploit rent seeking advantages or be unethical.
I think that's where all these portmancos come from. It's really really easy to look at existing business models, and come up with a way to blend them into new company.
[1] I'll assume everything you just told me is correct
> it's going to be much harder for startups to recruit employees with equity compensation,
Ageism in the valley is probably caused in part by that. Older developers have already been burnt in 2000 and are less willing to try another round (I have known a few of the virtual millionaire) and even those that have been working through the crisis are going to have a cautious approach. So that tilt the balance even more toward the younger developer working in hot startup and it becomes easy for their owner to mistake correlation for causation and assume older developer simply don't have what it takes.
I remember raising my eyebrows when my grand father was skeptical of banks and government guarantees. I have now lived through banks failing, government taking money off private account, ... Today I wouldn't be so dismissive of his concerns. So easy to mistake wisdom for old age stubbornness when you only have had an uneventful short existence.
> it's going to be much harder for startups to recruit employees with equity compensation
Great. The employees who don't want to, or can't accept potentially risky future compensation for their work, no matter what the reasons, shouldn't have to. That's why investors exist. They take on the risk, you get to pay employees actual money, win/win.
In addition, equity is just as much a "burnable resource" as money is. Those percents add up. If you're using it as an infinitely-growing imaginary carrot because you find that your runway is getting shorter and shorter as the months go by... well, that's probably not a good sign.
I would argue this is the best kept secret, because this flush out needs to occur to wash away all the so called disrupters who, as you put, are really just shuffling piles of money around instead of actually doing any innovation.
I hate to invoke schadenfreude here, but the past few years have been incredibly insulting to those of us who have been running highly profitable bootstrapped businesses, and so I eagerly await this flush. Picture Mr. Burns from the Simpsons tapping his fingers together.
Like you, I am a co-owner of a bootstrapped, profitable, conservatively managed technology company. I am happy to have built what I have. But I can't find a whit of pleasure at the prospect of a disastrous reversal in private technology financing. There are a lot -- a lot -- of bad deals receiving favorable financing from out-of-touch or non-traditional institutionals. That's true. And painful but non-combustive reversals are part of the functioning of markets, sure.
But SV remains the one place in the world where smart investors with genuine science and technology backgrounds are willing to play the long game with entrepreneurs. I spend a lot of time in London and New York. The generally hidebound nature of their investment cultures, which make perfect sense when you're doing an Exotic Pet Vet Tax-Free Rollup, or a Midwest Refrigerated Storage Debt-Chummed Dividend Fête, would never have made a bet on Google, Oracle, Nvidia, PayPal, Oculus, to take a few at random.
So while there are a good dozen $1b liquidation preference-cap companies that are fundamentally silly, wishing for a tidal reversal in private tech funding isn't a good idea. VC qua asset class is important.
Why I want the bubble to burst: I can't afford to pay Google, et al and unicorn salaries. My bootstrapped, profitable, conservatively managed company isn't swimming in cash. 10 years ago the pay we offered was competitive, but now... salaries (+ benefits) have gone through the roof.
But before this bubble, as a bootstrapped startup one could beat Google by offering very early stage employees an attractive mix of cash and a lot of stock: Google's stock options are not that attractive since it has gone public. Now on paper you cannot beat the offerings of the unicorns, since they also offer cash and stock options. From experience, the existence of unicorns made the life for a bootstrapped startup in San Francisco very difficult. In our office building in SF, we had probably about 6 bootstrapped companies in 2012, now only mine is left: the other 5 moved elsewhere (most are still open). The smaller offices were joined and the companies were replaced by the larger funded ones. Also the building was bought by a more greedy landlord.
Google's stock is very attractive. employees are generally paid in actual stock, and not options. there's a huge difference between options, and stock.
options in a startup, especially since ~95% of startups fail, are generally worthless.
They may be the leaders, but they have to compete so fiercely because VC money is employing a lot of engineers and programmers. If that VC money stops, there will be an oversupply of labor. And prices will fall.
I wish I could relocate, but I can't. As I mentioned in other places, because I'm in the SF Bay Area, people from low cost of living areas expect us to pay SF Bay Area salaries, even when they telecommute. I agree, if I was in a low cost of living place, that wouldn't be the case. I just wish it was, though.
As an example of the cost of living in South Bend, I easily afforded an apartment in the converted Studebaker family guest home, around the corner from the Studebaker mansion.
Google and Apple are very different from a unicorn. They are profitable public companies, and they'll still be around even if all the unicorns suddenly disappear.
We're talking about premium developers here. People making $150K/yr or more. I literally had people stolen by Google that were offered more than $250K/yr.
You are talking about something completely different than the rest of us.
Not really- but Google probably thinks they might be able to. Applying it's monopoly power, Google can easily charge more for its services if required. If it's moonshot projects fail to generate returns or its monopoly is threatened, then it may have to resort to Microsoft style 10,000 layoffs to readjust. Till then they can outspend you and anyone else to get what they want. We are in the Developer's market- in time we will be in Employer's market. Cycle of Life.
$250K would be about my minimum to coax me into moving to SV. Maybe (probably) more, I haven't done the math lately.
Hell, I'd probably still keep a better lifestyle staying put here in Florida where I make about half of that (and I'm considered highly paid around here). I would never expect SV pay for a 100% remote job that allowed to me to stay in my lowish COL beach town, and I don't know who would. That doesn't even make any sense.
I'm in Seattle, and $125k (which you mentioned elsewhere) is definitely on the thrifty end of the spectrum these days around here, and I'd expect that to be really low for SV. You might be able to pull it off if your company is extremely cool or if you're offering crazy equity (which a profitable, conservatively managed company most certainly is not doing), but even up here, the big boys are easily hitting $300k total comp for senior developers. I can't imagine expectations are any lower in SV.
Obviously, this just underscores your point, but I wanted to give you some datapoints since you seemed surprised that someone might not take the $125k offer. It's a seller's market.
I'm pretty sure there are, even right now, plenty of decent developers who would take seemingly lower salaries in exchange for working in a much lower cost of living area, provided the company itself is still fairly modern and forward-thinking both technically and culturally.
This is doubly so if you're not in need of Google-caliber talent. Then you're not even directly competing with Google et. al. in the first place.
No matter what the actual number is, if your salary translates into a sales pitch that looks like "comfortably afford a 3-4 bedroom house in a beautiful neighborhood, and enjoy an easy 15 minute commute by car while your kids go to a safe, reliably decent public school nearby", then you're going to get people interested.
Relocating outside of major hyper-expensive tech hubs shouldn't be seen as a failure. It should be seen as opportunity. There are reasons to be in San Francisco, and there are just as many reasons not to be in San Francisco or anywhere close to it.
I'm pretty sure there are, even right now, plenty of decent developers who would take seemingly lower salaries in exchange for working in a much lower cost of living area, provided the company itself is still fairly modern and forward-thinking both technically and culturally.
You would think, right? The last two offers I made where to people in very low cost of living places. I offered them our "Bay Area, not Google $$ salary" and they both said they expected Google salaries and turned down the offer. Until that point, everything had been clicking perfectly.
I know it's awkward, so I understand if you don't answer, but even wide number ranges would make this a lot less abstract. What is the range of "Bay Area, not Google $$ salary", and what do you alternatively think is reasonable and affordable to you?
Salaries of $125/yr were turned down. They were looking in the range of $150-175/yr. They where in areas where the $125/yr was equivalent to $75k/yr. We were looking at experienced developers only.
As I said elsewhere, we had a developer poached from Google for $250k.
> They were in areas where the $125/yr was equivalent to $75k/yr. We were looking at experienced developers only.
It sounds like you offered $75k a year [which you calculated as equivalent to a $125k/year offer for their location].
I'd turn that down too. People try to pull that adjustment trick on me all the time when I was looking to relocate, I'd go up there and they'd give me a number the day after I got home and I'd be like "...that isn't equivalent at all." and then politely decline.
The other question is where and how you're doing your recruitment. There are a lot of "under the radar" developers who work primarily for non-tech companies in a tech role. These folks are not rockstars, but many are competent enough and much cheaper (sub-6 figures) than a startup/tech developer.
You may be surprised by how many hidden gems, you have in your own network. It probably applies if you have worked for a long time (10+ years). Some months back, I was able to hire an ex-colleague, who is a great developer. Who took a paycut to join my company for privileges like work from home, and freedom to work on cutting-edge tech (relatively, by leaps, from his prior long held position in a corporate).
FYI... My monthly living expenses in the midwest, for everything, are less than $1500, and I have a family and a mortgage. If I were single, I could live nicely on < $1K/mo. Starting salaries here are $60K and senior engineers expect > $100K.
Value drives the discussion. If you're not paying $120k + 25% overhead for skilled/good tech people, you're catching people who don't know the market, are in a bind or underestimate their worth.
> I offered them our "Bay Area, not Google $$ salary" and they both said they expected Google salaries and turned down the offer. Until that point, everything had been clicking perfectly.
Can I ask what number you went with?
The reason I ask is I don't live in the Bay Area and do live in a lower cost of living area [but still not cheap] but the figures for any decent senior engineer here are still $100k+.
That would create problems for existing developers. Last thing I want to do is piss off my current, valuable staff who absolutely love working for me. Many have been on the job for 10+ years.
Okay, but then the question becomes, how often would it have to happen before you increased the salary of your current staff as well as the offer to new hires, to reflect the new market reality?
I mean, the broader question seems to be, is this just a thing we're going through or has the world changed and are developers just demanding more money for the kind of work you're doing?
I think there is a phenomena where people measure themselves by salary more strongly than quality of life, because it is easier to compare apples to apples. When I was graduating from Business school (twenty years ago when people did that so don't throw shade) people compared themselves against their other classmates in terms of salary almost exclusively.
In retrospect it may have been more important to get your foot in the door of a company or industry that you wanted to stick with for a career. Alternately, if you get paid a lot when you are young it becomes your quote. In my experience, people who don't get paid a lot at the start tend to get paid less for the rest of their working lives.
So... what does that practically mean? Bay Area salary = $100k+benefits, Google salary = $200k?
I definitely know folks who claim Bay Area $ to be $60-$70k and play the numbers game... but then they play the numbers game (and 3 isn't a numbers game).
A good chunk of that is not the bubble. It is due to ending the anti-poaching collusion between top tech companies that had been letting companies keep salaries down.
2. Salaries are not being kept down in SV. The whole topic here is that they are out of control. Have you actually tried to hire anyone? I have. Even people that telecommute from low cost of living areas want SV salaries. I've had to go outside the US for my last 2 hires.
I think you're getting downvoted because you seem to have misunderstood the parent commenter. They were saying the same thing as what you're saying here. Ie. that salaries are high because "that was deemed illegal and they've stopped".
You misunderstood me. I'm saying that the fact that they stopped means that we should expect salaries to go up. Because they were artificially lowering salaries before, and now they stopped that.
>Why I want the bubble to burst: I can't afford to pay Google, et al and unicorn salaries. My bootstrapped, profitable,
that is called market economy. Whoever can use programmer more efficiently and thus pay higher salary would get that programmer. In a big picture, using a resource less efficiently means pretty much wasting it. Do you make revenue per programmer like Google? If not, may be you need to look at where is a waste in your business process. Your employees wanna be productive and as result wanna do a lot of money for you and the themselves. You owe them efficient organization of business.
> 10 years ago the pay we offered was competitive,
the point of technology industry is to facilitate the process of natural selection out of anybody anywhere who hasn't changed in 10 years.
I'm not trying to offend you. I've been sitting in my current BigCo for 4 years already, and see how i myself starting to be the candidate for being selected out if don't do something in the near future. 10 years is a historic epoch in the industry. The industry did look completely different back then.
True, but imagine how many more new Google-like companies VCs could have helped to create if they hadn't spent money on silly "Uber for Pets" start-ups. It almost seems like investing in early stage, but serious companies is a thing of the past. Now, it is more like "pump-and-dump".
I have read more than one post on hn about freelance developers bragging about how much money they are making and handing out advice to others for how to make more. When this 'bubble' deflates, dev salaries are going to take a big hit and it is going to be painful.
The best advice for those of you getting paid $150+ an hour is save your money and don't take on long term liabilities.
I am reminded of that lovely remark once made by Boris Johnson's, London's blond bombshell of a mayor, when asked about his £250,000 a year contract to write a column for The Daily Telegraph: "It's chicken feed."
You do realize that most contractors don't have 100% utilization (far from it) and also don't get paid for time it takes to make sales, find clients, they pay for their own health insurance...
$150 /hr is basically the least you're going to want to charge. Realistically you're going to be looking at 90-120k /year depending on how much work you land at that rate.
For highly skilled intellectual work, that's not very much money.
$150/hr for a contract that will last 5 hours is terrible, because of all your overhead costs. If the contract lasts 8 months, is likely to be renewed, and you are expected to bill around 40 hours a week, the overhead is pretty much gone, so it's very easy to make comparisons with salaried work.
Around here in the midwest, under those long-term circumstances, many contractors don't hit the three figures. A whole lot of senior devs around here are slumming it at a $50-$80/hr range.
> $150/hr for a contract that will last 5 hours is terrible, because of all your overhead costs.
That was my point about how $150 isn't some insane amount of money. Depending on the length of contract, it may be almost nothing at all with the overhead factored in.
Out of curiosity are those senior devs keeping their skills up, or are they programming in Java/.NET or something similar?
At those rates I'd definitely be interested in taking a look at their CVs since I often need to hire developers. It's WAY below market.
Platforms such as Java or .NET make up a lot of the developer community, just not the visible (startup/tech) community. I'm classified as a "senior developer" at my day job ($90K/year) and I also do contracting ($60/hour). I could probably eek up both of those numbers a little bit, but not a lot without having to move to the cutting edge of technology.
There's a lot of folks like me who program on older, non-sexy, maintenance roles on established systems which use older technologies. Outside of big cities, these positions don't generally command a big wage.
> I could probably eek up both of those numbers a little bit, but not a lot without having to move to the cutting edge of technology.
That's my point. As a developer (especially a contractor) you must always be learning new things and technology. It also helps to specialize in a field/domain.
If you're a senior developer you could absolutely make double $60/hr as a contractor by just focusing on the business side of contracting a bit more.
There's a lot of folks like me who program on older, non-sexy, maintenance roles on established systems which use older technologies. Outside of big cities, these positions don't generally command a big wage.
I've been paid $109k a year for work on Smalltalk. And yes, it was this century, in Houston. (As of this writing, 4th largest city in the US.)
> Out of curiosity are those senior devs keeping their skills up, or are they programming in Java/.NET or something similar?
Those two things aren't mutually exclusive. There is very good money to be made consulting at the enterprise level doing Java/.NET or something similar, but you also have to keep your skills up.
> Presumable some/many of those full time employees will become contractors. Increasing the supply of available contractors.
My experience is most of these people will leave the industry. Very few have the skillset to become an independent contractor because of all the sales and marketing involved (in addition to the tech skill set you're actually selling).
> What happened to contractor pay in 2000?
I have no official data, but I was contracting at the time and continued to raise my rate a reasonable amount at semi-regular intervals (every year or two). During that time, people needed to get work done but they wanted one super contractor to do the work that a team of middling engineers used to do, for 1/5 the cost.
> The best advice for those of you getting paid $150+ an hour is save your money and don't take on long term liabilities.
That's good advice, regardless of how much you earn (but it might need a 'save your money when you can').
Spending money when you don't actually have to is a bad strategy when you're young and you can still materially alter you later-in-life situation with relatively little funds.
That's why I hate student debt of any form, it saddles those that would benefit the most from some savings with debt so they can't start to save until they're in their mid 30's or even later.
Given it was obvious to people on the sidelines for awhile that something was off, I'm not sure if its well kept.
> I hate to invoke schadenfreude here, but the past few years have been incredibly insulting to those of us who have been running highly profitable bootstrapped businesses, and so I eagerly await this flush.
I wouldn't say its insulting. Business is business. You'll have a company when this mess implodes, they won't.
I think the definition of Unicorn doesn't work -- it made sense when it was Uber, AirBnb, Dropbox and a few others. But when a dead man walking MDM vendor like Good is a "unicorn" that is subsequently purchased by a zombie like BlackBerry, something is wrong.
Even some of the more legit "unicorny" companies like Dropbox have issues. I've been a happy user of Dropbox for many years, but they refuse to provide a service offering that I can actually justify paying for in my personal life. And while they have an awesome service, they refuse to make the security investments that would allow my employer (who desperately needs a good solution in the space) to give them money. Anecdotally, I've found a few people with the same takeaway -- they want to give them money, but can't justify it at home or deal with service gaps in a business settings.
Can you share the requirements that you employer needs? Box has been trying to get into enterprise for a long time, and has many 'enterprise' features, but we all know how well Box is doing financially. I think the problem with Box is "it's just a feature, not a product", especially in the presence of other alternatives like One Drive, Google Drive, Amazon Drive and what not. It might be a feature done better than the others, but it's not a product by itself to be bought in a stand alone package. There is no differentiation, actually it's even worse as I can't edit my documents unlike with Google/MS. Pricing is definitely not better than any of the competitors.
We have a lot of compliance requirements that I'd rather not get into. In general, the FedRAMP Moderate baseline is where we start, and depending on what/who the data/users are we may add more requirements.
OneDrive claims to do this at the service level, but the implementation is poor and the controls aren't very robust when you implement. (Unless you buy Azure AD and double the cost or wait for their rewritten sync engine) Google & Box (although Box wants a high premium $$) are a lot better, but Dropbox is still best in class for sync.
In some cases, we are forced to throw features away. For example, we have some users where a solution that encrypts data, limiting editing & search capability is a requirement for some information.
Beyond that, a broader concern that would be of interest to me would be narrowing the scope of some of Dropbox's features like dedupe and "forever" files. (It's been awhile since I looked, so this may have changed) I would prefer a solution where there was a key isolating our data from other data in the Dropbox cloud. (bonus points if we controlled that key) That way, nobody outside of our enterprise would have a way to know if a specific piece of information was already uploaded to Dropbox.
To me, it's great tool for a single person or a team of 8-25 people. It's missing stuff and is expensive for a real big org, and doesn't scale low enough for a family. (at least at a price that I'm willing to pay)
I suspect Box (and many small cloud vendors) is simply ahead of its time, as a large factor.
No one bats an eye at Google Docs today, but when Corel tried to do it earlier, they suffered for it. It takes time for markets, people, and processes to adapt to new ways of doing business.
The “unicorn” is not a new buzzword but the frequency of it popping up the last several days lets me assume there is a unicorn inflation underway. Put on your muck repellant and get ready for bursting bubbles full of unicorn blood.
I'll say it again: call them zebras. There are no unicorns. There are zebras. And if you see either of them in the wild (outside Africa) you're likely staring at a decorated donkey.
I really wish business insider would post an article that refrains from wild speculation and provides actual evidence to support their outlandish claims.
"This CEO said the Valley used to be a place of "quirky people" but was now filled with "arrogant" people"
Valuations and market corrections aside, this comment is the thing that resonates with me the most. I got into tech and the Internet as a kid in the early 90s because of all the cool, intelligent weirdos thinking about and building the future. I've been traveling out to SF for about a decade now from NYC to do work, and it's been sad to watch that city go from a place I thought could be the only other place besides NYC I could live to a city I try to avoid. It feels like it's getting harder and harder to find those awesome weirdo hackers. The homogeny is brutal in SF.
The one upside is that it's still the Internet and I don't have to be there physically to enjoy the parts of it I like.
I've met some people that have moved away from SF who are both intelligent hackers and arrogant. It's possible that your intelligent hackers were transformed by the SF atmosphere.
Oh, yeah, I've definitely worked with those types before. I still have love for most of them though because of the intelligent, quirky side. I read the OP comment as the wall street types invading the industry, but I guess I shouldn't make that assumption.
I got my start in the 90's and there has always been a bit of arrogance in programming and IT. Saturday night live used to have "The IT Guy" who was a rude, arrogant support engineer.
I write it off a lot of times as social awkwardness - which sometimes comes off as rudeness.
> Here’s the Damaso Effect. [...] They come from the colonizing power, which is the mainstream business culture. This is the society that favors pedigree over (dangerous, subversive) creativity and true intellect, the one whose narcissism brought back age discrimination and makes sexism so hard to kick, even in software which should, by rights, be a meritocracy.
"This CEO said the Valley used to be a place of "quirky people" but was now filled with "arrogant" people"
Right on. I remember being in Noisebridge, just after moving to the Bay Area, basically being snubbed and bullied by a poster child for "The Nerd-Jock Convergence." And that isn't even the worst story I can tell.
I've run into as many delusional, arrogant people on coke here in the Bay Area as I did going to an Ivy League school in the 80's. That's not an exaggeration, sadly.
I was a student in Berkeley in 1990's. Soon after Netscape's successful IPO, I distinctively remember a CS student commenting on a change in the make up of students (mainly business school types) hacking away in the CS lab.
You can easily tell apart CS majors and business school types.
1. Comments about X place changing always fail to mention the observer of said changes may have changed. It's easy to conflate the personal loss of youth or time with some "other" loss or change "out there."
2. Or the idea of "weirdo" itself has changed in a way not recognizable to aforementioned observer. Namely, "weirdo" may not be an ostentatious display as it was in the 90s but something entirely different...
You're likely hanging out with "the wrong people". In other words, you probably have existing relationships and connections with people that have grown in their douche-dom as SF has. There's still a lot of cool, quirky, and non-money focused people here.
> 90% of the startups will be repriced or die and 10% will make it
Wasn't that inevitable though?
There's a lot of money at stake, but the number of affected people is relatively low, isn't it? I understand why HN readers are interested in this, but is it a big story outside of tech circles?
This is one of the most blatant cases of spin and justification I've ever read. VCs put "ratchets and downturn protections" in order to satiate founder greed? Ha! More like VCs waved huge valuations in front of founders and said "don't worry about the terms, this is good for everyone."
If nothing else this article does a good job of demonstrating why its important to always check your sources and their biases.
I'm in Chicago, far away from the action in SV. Lately, my friends and I have been getting unsolicited calls to participate in the next rounds of funding for various "unicorns." We are mostly just laughing, because it's farily obvious that we are only getting these calls now, after all these years of unbelievable[1] tech returns, because SV thinks that backwards and unprogressive midwesterners like us are going to be the goats buying the top of their grand pump-n-dump scheme.
It would be uncouth of me to say "I doubt that this comment is a literally accurate transcription of something which happened in consensual reality" but if anyone is hanging around the phone wondering "That's funny, Uber never called me": unless you happen to run a VC firm, it's highly, highly unlikely that a late-stage startup raising e.g. a D round at a multi-billion dollar valuation is interested in making your acquaintance as an investor. At seed stage or maybe an A, sure, a $25~$50k check from a technologist is still a meaningful amount of money (and valuations would probably be single-digit millions), but even if there were no legal issues at play, no firm raising on a billion dollar valuation will speak to you because the time it takes to close you would be better spent on convincing someone who can write a check that matters.
You're writing words as if you disagree with me, but you are making my point. The only time we would get a call is when they've run out of every other option, and are willing to endure the added cost of desperately trying to find anyone to write them a check. This isn't an unusual circumstance in marketplaces. Sometimes investors are hard to find. But a good way to differentiate a distressed investment and a pump-n-dump is that when salesmen are desperate to make a sale on distressed investments, prices are usually near record lows. For PnDs, they're at record highs.
And as for the calls. We don't get them directly from the company. It's banks who are organizing pooled investments.
I'm not too familiar with this, but I have read a few stories on Bloomberg about some of the large investment banks selling chunks of shares of Uber to their clients. Just the other day they said they reduced the minimum order size as well (I think they said $25k).
I have done zero digging, but it doesn't shock me that people at JP Morgan and other investment banks are making calls to their private wealth management clients to offer them shares in large private 'unicorns'
This is probably different. The problem with the subprime crisis was banks had to keep the mortgage assets on their books. They'd buy it -> package it -> sell it. Some banks realized, damn this shit is going to be worthless. And they sold their toxic assets.
Here, the banks don't buy a stake in Uber until they arrange the pool of investors. Or maybe they are selling shares from other clients who want to get out of the investment.
It's doubtful the banks themselves have Uber equity on their books.
They likely have liquidation preferences so they are probably extremely comfortable holding the "equity" while it matures at a premium to what they put in while holding an option on more upside.
I'm not getting calls directly but I am getting calls from second market brokers pitching companies that never used to be available (or sold instantly) like Pinterest and Uber. There is a large lot of Uber shares that one firm in particular has been trying to sell at the 50b valuation price for a few weeks now, seemingly without success. Just another anecdotal data point.
Repeat of the DotCom bubble, a few startups make it big then everyone and their aunt tries to emulate it with slight variations or solutions to a problems that don't exist. This app bubble is very pregnant and about to deliver something awful.
I still don't understand why tech media (and the rest of the industry) are still not calling out these silly valuations for what they are - marketing spin.
With term sheets the way they are with liquidity preferences if I as a VC invest $100 million in a startup for a 10% stake at a 1X liquidity pref, the valuation I'm placing on that startup is $100 million and that is therefore what its reported valuation should be.
No need for any repricing of these startups - just report their true valuation as largest amount invested with liquidity preferences.
Edit: Just an additional point to add - If I really valued it at $1 billion I wouldn't need the liquidity preference.
I think it all started with Facebook. TechCrunch was reporting every 2 weeks on how Facebook's valuation grew another $5 million. What kind of "news" is that, unless you want to profit from the extra hype of Facebook's valuation?!
Many people got very rich from Facebook gaining such high valuation before IPO. And now many other VCs want to replicate that kind of sort of almost ponzi-scheme type of investment.
Literally Ponzi. It's only an anecdote, but I found this one interesting, from a physicist talking about a startup whose key innovation literally defied physics (recharging batteries via ultrasound): http://su3su2u1.tumblr.com/post/129385764803/conversation-wi...
> I reached out to an investor in impossible startup I had talked about previously. Had a long phone call today, in which he explained to me he didn’t invest because he thought they’d ever be a viable business. He invested because he thought between their pitch/charisma and the names of the investors backing them they’d be able to get several rounds of funding, and he’d be able to cash out.
That is: there's so much VC money sloshing around that hoping for a Greater Fool literally counts as a business strategy.
I found that best indicator of such schemes is when their only achievement is a celebrity team backed by celebrity investors. while both are good for raising awareness of the cause, if traction data is missing, I stop reading, mentally flag it, and move on.
This. Private market "valuations" are mostly BS. And for this exact same reason we see some companies delay their IPOs because then their real public-market valuation would come out.
There's a bubble in bubble predictions. Everyone wants their 'I told you so' fame, for some reason. I guess it's human nature to want to be right or to see the overly successful stumble back to earth.
He says there is "blood in the water," and we are entering a 90-10 situation for the unicorn class of startups with billion-dollar valuations in which 90% of the startups will be repriced or die and 10% will make it.
Well, that's kinda how it's supposed to be. That's why expected value is more important. A few $200+ billion Facebooks and Googles can compensate for a lot of smaller $1 billion failures.
As a friend of mine said when I was interviewing with her to escape the 100-hour-week death march at the "unicorn" I was at: "You're not a unicorn until someone buys you for $1 billion."
They may be valued at $1B+, but they're not worth that much.
I'm a tech recruiter here in Chicago. I work with a Unicorn that's website looks like its from the early 90's, is primarily using old legacy code, and just hired a contractor that has been unemployed for 9 months who I thought we would never place.
This company alone has convinced me that the term unicorn means very little.
What's missing from this guy's evaluation: whether or not any of these unicorns are close to or at profitability, and what their actual market potential is.
If the businesses are based on bullshit, then he's probably right. If the valuations truly are wildly out of control (and it does seem like it), then sure, they're due for a correction.
It's also worth keeping mind that if there are 144 of these startups, 90% of them is 129. That doesn't add up to that much money in SV terms. This seems like a tempest in a teapot. People love to make headlines, it seems, with "OMG bubble OMG!"
With minimum valuations of $1 billion each, that's well north of $129 billion in valuation that's about to go up in smoke. I know that's not an actual dollar amount invested in these companies, and in many cases is honestly just people proving they can add a few numbers together to make a billion, but a lot of real money is likely to be lost.
Just for some perspective, the current market cap of the S&P 500 is north of $15 trillion dollars. It can gain or lose $129B worth of valuation on a not particularly remarkable trading day.
Not that such a geographically and industrially concentrated collapse wouldn't be a big deal, and it surely would have broad secondary effects.
> There are about 144 unicorns right now. If only 10% break out, that's only 14 companies that will really make it.
Doesn't this ratio seem about right for any basket of unprofitable (or even zero-revenue) high-growth companies regardless of valuation? If those 14 winner companies average greater than a 10x return then everything pans out as expected--lots of risky investments together produce a reliable if more modest return on investment.
It seems like the only abnormal aspect is the size of the valuations, but that might be just what happens in a low interest rate environment--too much money chasing too few deals. Whether this affects this success rate of these investments remains to be seen I guess.
Your assumption of 10% breakout is based, on some level, an assumption that each company's valuation is uncorrelated with the others, and each company will rise and fall on its merits. However, the nature of bubbles is that valuations become based on underlying structural reasons - this is what happened during the housing bubble as well. Statistical generalizations such as 'even if up to x% of people default on their loans, we'll still make money' were used to justify unreasonable investments in homes, which in turn drove a real estate valuation bubble.
Well, here's what we learned in 2008 - in a down market, it's possible for _way_ more than x% of people to default all at the same time.
Yeah, I wouldn't rule out the possibility of structural problems--we've never seen this phenomenon before so it's hard to say how it will turn out.
I was just trying to point out that it's not impossible for the current crop of unicorns to produce big enough winners to outweigh the failure of the rest.
I'm definitely skeptical that this will happen though, because the winners would have to be really big (hundreds of billions in actual market cap in the public markets) in order to make up for the really big failures.
You have to make a killing on that 10% if you are going to make up all the losses on the 90%. That works for early state investing, but I can't imagine that works for late stage.
But the real problem with bubbles isn't that loser companies are pumped up, but real profitable companies are way overvalued too. During the dotcom crash Microsoft lost half its value. It was a winner. It had massive profit margins the whole time.
So Uber may be in the 10% success. But if you invest right now, it might be worth half as much in 5 years.
This is a popular idea on HN and just gets upvoted because people want to agree with this and it makes them happy for some reason, but this article is not a good article. It's basically just a quote. I think any kind of the-sky-is-falling article has the chance to get good traction on HN lately without offering anything meaningful. The discussions in this thread are pretty poor and the article is poor.
The fact that so many people are frustrated and have had their comments upvoted while yours sits down near the bottom quarter of the page with only two replies should be an indication that your thinking might be out of step.
I've always envisioned most tech businesses in general as an elephant standing on a board with a bunch of mice underneath it. The mice keep the elephant moving, but if the mice aren't continuously fed, they slowly die off. When enough mice die, the rest can't support the elephant and it thus squishes them. The elephant is shot shortly thereafter because it stopped moving. The mice that left sometimes come back to feed on the elephant carcass.
You have to keep in mind the source. Let me put it this way. A VC's job is to buy X (where X is equity in a startup). Of course every VC would love for X to go on 50% sale ... or even better 75% sale.
You saw this with hedge fund managers and the stock market as well. Lots of hedge fund managers went on and on about how irresponsible Bernanke was because he kept interest rates low which raised asset prices.
To be clear, I don't think this is a nefarious or even conscious process. However, I think if someone really wants a particular scenario it tends to color their thinking.
Also the actual claim made isn't as sensational as the headline. Just says that 90% might take a lower valuation. All that requires is a general market decline.
Buying lower means a lower exit is required to get the same multiple. So buying lower is always better for a VC. Worst case they make less money on the same multiple, better case they make a much higher multiple. It's all about the rate of return, not the actual amount (assuming the amounts are still worth the effort of investing, obviously there are some lower bounds here).
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[ 6.5 ms ] story [ 258 ms ] threadMarket's across the board are doing pretty bad this month - It would be interesting to how bad tech is doing relatively to oil futures and other commodities.
Edit: I don't know why I'm being downvoted for asking a question. I've many times seen a stock sector performance chart (I don't know the technical name) with most of the market red and tech lit up bright green.
In a site like this, where we care specifically about the health of tech, claiming that the sky is falling for our sector without looking at other sectors would be folly.
Volatility appears (and is fed back) as people re-evaluate risk vs reward.
People who held unfashionable Microsoft stock made more money than people who got in on the last two Tumblr rounds over the same time period. Early investors are no longer just technology zealots who made $300 million 10 years ago -- actual financial companies are involved now.
Also early-stage startup investing is a drop in the bucket of the greater market. If people are even bothering to move their money out, that's an even more significant indicator.
http://finance.yahoo.com/echarts?s=XLK+GSG+Interactive#{%22r...
add GSG to compare.; set to 3 months.
In Portugal it caused the first signs of the current crisis, and caused quite a few of us in IT to move abroad.
Despite not being invested in complex derivatives, middle america sure noticed the banking crisis.
Your time and expertise in these areas will give you better insight that most other investors will not have. See Warren Buffett's "circle of competence".
'Course, that invites some comparisons to equity in startups...
It long since stopped being about innovation and disrupting markets and became mostly about shuffling piles of imaginary units around so a select few could get rich. Sadly the pawns in this whole game will be all the employees holding options that are soon to be worthless... and who were convinced to take those options in exchange for taking a proper cash salary.
The only good thing this time around is that (unlike the last big Silicon Valley implosion) most of these companies are still private. So it will be really messy for some private investors and the greater San Francisco area is going to have a mess on its hands, but the broader US economy isn't going to get impacted as much. The stock market of 2015 also isn't propped up by bloated tech stocks in the way it was in 1999-2000.
What I have seen evidence of is a slowing economy and a shift towards more conservative investments. It happened in the early 2000s, in 2008, and it seems to be happening now.
0: http://www.fwd.us/
1: https://pando.com/2014/01/23/the-techtopus-how-silicon-valle...
2: http://www.usatoday.com/story/money/markets/2015/12/04/maris...
3: http://nypost.com/2016/01/18/marissa-mayers-job-safety-joke-...
4: http://www.businessinsider.com/eric-jackson-slams-yahoo-for-...
5: https://www.atlantic.net/blog/how-elon-musk-ceo-of-telsa-mot...
If you increase any one of these factors, you get more production (i.e. more prosperity). For instance, Capital: if Chinese/Russian billionaires decide to invest all their money in American companies in America, then it would result in huge economic growth.
Similarly Natural Goods: If prices of oil fall drastically, or lots of natural goods (even land) are discovered, then again there will be increased production of goods (i.e. more prosperity).
Finally, Labor: if labor prices fall drastically, or labor force is increased, again more production will happen. Prosperity will ensue.
The first two makes sense to most people, but somehow the third point doesn't because most people are part of the labor force therefore emotions kick in. The simple logic you're demonstrating is a childish whining:
> Tech execs and investors love to complain about having to pay six figure salaries to the engineers doing all the real work, all while carting home hundreds of millions themselves in just severance pay<
The whole job of tech execs and investors is to increase production. Acquiring capital for cheap (lower interest rates) would do the job, acquiring land/natural goods for cheap (like moving office to a cheaper part of the town) would also do the job, and finally getting cheap labor would also do the same thing.
Complaining against a businessman trying to find cheaper labor is like complaining against the QA for trying to find bugs in your code.
> if labor prices fall drastically ... more production will happen. Prosperity will ensue.
> somehow the third point doesn't because most people are part of the labor force therefore emotions kick in. The simple logic you're demonstrating is a childish whining
Next time a bubble pops and I get a 30% pay cut I will take comfort in the fact that the prices of goods & services around me will soon fall by >30% to compensate (because of all the prosperity) thus preserving my quality of life and proving that my concerns were merely "emotions kicking in" and "childish whining" rather than predictions that the terms of my social contract were about to get dramatically worse.
My post was responding to the fact that increased immigration (of high tech or white collar, both) helps people in general by increased prosperity (nothing in this post was about an emotional outburst of the conditions and welfare of immigrants).
You respond by talking a non-sequitur about a bubble. It doesn't make any sense.
Funny thing is, what you wrote rhetorically is exactly what happens in a crash.
As a consumer you don't care whether your salary is $100K or $50K, what matters is what you can buy from your salary. If you can buy a home on mortgage on $50K salary and save for your kid's education, but can barely pay rent and groceries on $100K then the $50K Salary is higher 'real salary' (albeit a lower 'nominal salary').
Any recession is only cleared when real wages fall faster than the real prices of the goods (because only then businesses can be profitable again).
According to free market economists, let wages and goods of prices fall. This will eventually clear the market.
According to non-free market economists (which includes Keynesians and monetarists) increasing the money supply is the solution because it lowers the real wages (albeit keeping the nominal wage high). So at the end of a recession you still make same salary as you did at the start of the recession, but you can afford fewer goods now. This ALSO clears out the market and businesses become profitable again.
Introduction of educated immigration labor would actually result in faster recovery (just like lowering of interest rates would make businesses more profitable).
Fair enough. You might even be right. Even if one were to assume that you are, however, why does it follow that those involved should be happy with their fate as a stepping stone for society? That their complaints are nothing but "childish whining"?
Furthermore, the fact that an action creates winners and losers is far less open to interpretation than its ultimate connection to the progression (or regression) of society. If you substitute faith in one system for faith in another then the same argument you made earlier has been made in a million other contexts to defend acts that you would consider unconscionable. In this context "It's for the best, honest!" is a weak argument regardless of how convinced you are that your model of ultimate benefit/detriment to society is correct.
The problem isn't a shortage of engineers, it's a shortage of quality engineers who don't subtract more value than they produce.
When the tech bubble crashed in 2000, and I moved from a startup to a Fortune 500 company, my job became less enjoyable, but my salary did not go down. Then again, I began looking for a job in April 2000, as I had been anticipating a correction - some people with no college and no non-startup experience rode it out to 2001 at their startup, were laid off and had trouble finding work.
Being based in a big job market outside the Bay area where I am rooted and networked was also helpful in 2000.
One difference between now and 2000 - the only real capital expense to start many software businesses nowadays is payroll. It is much less expensive to start a business. This may affect things.
The ones that were really hit were new grads who had accepted jobs that went away before they got there or had only been on the job a couple of months.
Another big difference (I hope) was that 9/11 came along right after and changed things in a much more macro scale. Don't know how much we can draw from that.
Nobody wants to see a collapse for collapse's sake, but there is quite a bit of social good in avoiding or deflating an asset bubble, be it in residential mortgages or late stage technology companies.
There is absolutely this attitude present. I've heard it both in the Midwest and out west in San Francisco and Oakland both.
I can even understand it to an extant, because although I am in the not-a-bubble camp, I am annoyed when I see media and others acting like "Uber for pizza" is a mind-blowing idea.
As someone mentioned on another thread a day or two ago, just look at the latest YC batches, particularly the IT companies. They're largely "X for Y" sorts of companies that already have significant traction. It's unlikely that the Airbnb founders would be able to get into YC in 2016.
> Sadly the pawns in this whole game will be all the employees holding options that are soon to be worthless... and who were convinced to take those options in exchange for taking a proper cash salary.
And on the other side, once the bubble bursts and the options are exposed as worthless at many of these companies, it's going to be much harder for startups to recruit employees with equity compensation, which will only make it more difficult to control burn rates.
Square is a great example of a company that people joined for all the wrong reasons. Not only are they incredibly unfocused when it comes to their mission, products and customer base, but the people joining it seemed to be doing so out of a mercenary instinct triggered by an expectation that Jack's second company would of course be a hit.
If you actually look at what Andreessen did at Netscape, he was little more than the pawn of Jim Barksdale and Jim Clark, who trotted him out as the "boy genius" every time they needed to do some PR or developer/community outreach. The vast majority of the code was written by the far better software engineers than Andreessen who joined the founding team (Lou Montulli, Jamie Zawinski, Ramanathan Guha, Aleksandar Totic, and more).
Other than that, I'm not even sure why Clark approached Andreessen to co-found Netscape. There were multiple people who worked on NCSA Mosaic, which was itself based on open standards (and the source could be obtained). And Andreessen didn't really believe in its commercial potential at first - he moved to SV to work at Enterprise Integration Technologies, only to quit his job after a few months, when Clark emailed him.
As someone who lived through TechBubble v1: People said exactly the same thing back then. There's always a new batch of graduates with dollar signs in their eyes who believe "it's different this time".
Hasn't that always been what "merger" meant? :p
Edit: My joke is that corporations have been making dumb amalgamations for many many years now. Anybody remember "Mr. Sparkle" from The Simpsons, where two companies in fish vs. heavy-industries combined to sell detergent? That was amusingly-relatable even when it came out 18 years ago.
The general explanation for this phenomena that I've read bandied about (but have no idea of its veracity as I'm just an industry outsider): financing films has gotten so expensive and risky, that only proven models of making money are commonly given green lights. It's considered innovation at the financial level to mix-and-match proven models, because that's all the risk that is willing to be absorbed. What the purchasing side actually wants is too opaque/non-linear/unpredictable/take-your-pick-of-explanation for the big name finance people to consistently figure out what really is innovative. That's probably why YC attracts a lot of attention from the big names, because they hold out the promise of piercing that veil.
Now, these people are plenty smart. They usually have gotten great educations and whatnot, but they lack the drive to be motivated by a love of doing this great thing, rather than accumulating some money. Some of the greatest creations in tech were not motivated by money at all. When a great film maker goes to bed or on vacation, he's sometimes kept awake with ideas on how to make a better film or pondering a new concept. He takes no real vacations, because he loves his art so much that he never even wants to escape it. The money-driven type doesn't. When they go on vacation, they escape. And professionally, they tend take the easiest path to their destination. And the easiest path to cashing out is to look at how other people became successful, and make a small deviation from their path then copy or exploit rent seeking advantages or be unethical.
I think that's where all these portmancos come from. It's really really easy to look at existing business models, and come up with a way to blend them into new company.
[1] I'll assume everything you just told me is correct
Ageism in the valley is probably caused in part by that. Older developers have already been burnt in 2000 and are less willing to try another round (I have known a few of the virtual millionaire) and even those that have been working through the crisis are going to have a cautious approach. So that tilt the balance even more toward the younger developer working in hot startup and it becomes easy for their owner to mistake correlation for causation and assume older developer simply don't have what it takes.
I remember raising my eyebrows when my grand father was skeptical of banks and government guarantees. I have now lived through banks failing, government taking money off private account, ... Today I wouldn't be so dismissive of his concerns. So easy to mistake wisdom for old age stubbornness when you only have had an uneventful short existence.
Great. The employees who don't want to, or can't accept potentially risky future compensation for their work, no matter what the reasons, shouldn't have to. That's why investors exist. They take on the risk, you get to pay employees actual money, win/win.
In addition, equity is just as much a "burnable resource" as money is. Those percents add up. If you're using it as an infinitely-growing imaginary carrot because you find that your runway is getting shorter and shorter as the months go by... well, that's probably not a good sign.
I would argue this is the best kept secret, because this flush out needs to occur to wash away all the so called disrupters who, as you put, are really just shuffling piles of money around instead of actually doing any innovation.
I hate to invoke schadenfreude here, but the past few years have been incredibly insulting to those of us who have been running highly profitable bootstrapped businesses, and so I eagerly await this flush. Picture Mr. Burns from the Simpsons tapping his fingers together.
But SV remains the one place in the world where smart investors with genuine science and technology backgrounds are willing to play the long game with entrepreneurs. I spend a lot of time in London and New York. The generally hidebound nature of their investment cultures, which make perfect sense when you're doing an Exotic Pet Vet Tax-Free Rollup, or a Midwest Refrigerated Storage Debt-Chummed Dividend Fête, would never have made a bet on Google, Oracle, Nvidia, PayPal, Oculus, to take a few at random.
So while there are a good dozen $1b liquidation preference-cap companies that are fundamentally silly, wishing for a tidal reversal in private tech funding isn't a good idea. VC qua asset class is important.
options in a startup, especially since ~95% of startups fail, are generally worthless.
On my grad student stipend.
https://news.ycombinator.com/item?id=10946880
He's spot on.
You are talking about something completely different than the rest of us.
Hell, I'd probably still keep a better lifestyle staying put here in Florida where I make about half of that (and I'm considered highly paid around here). I would never expect SV pay for a 100% remote job that allowed to me to stay in my lowish COL beach town, and I don't know who would. That doesn't even make any sense.
Obviously, this just underscores your point, but I wanted to give you some datapoints since you seemed surprised that someone might not take the $125k offer. It's a seller's market.
This is doubly so if you're not in need of Google-caliber talent. Then you're not even directly competing with Google et. al. in the first place.
No matter what the actual number is, if your salary translates into a sales pitch that looks like "comfortably afford a 3-4 bedroom house in a beautiful neighborhood, and enjoy an easy 15 minute commute by car while your kids go to a safe, reliably decent public school nearby", then you're going to get people interested.
Relocating outside of major hyper-expensive tech hubs shouldn't be seen as a failure. It should be seen as opportunity. There are reasons to be in San Francisco, and there are just as many reasons not to be in San Francisco or anywhere close to it.
You would think, right? The last two offers I made where to people in very low cost of living places. I offered them our "Bay Area, not Google $$ salary" and they both said they expected Google salaries and turned down the offer. Until that point, everything had been clicking perfectly.
EDIT: last three people.
As I said elsewhere, we had a developer poached from Google for $250k.
It sounds like you offered $75k a year [which you calculated as equivalent to a $125k/year offer for their location].
I'd turn that down too. People try to pull that adjustment trick on me all the time when I was looking to relocate, I'd go up there and they'd give me a number the day after I got home and I'd be like "...that isn't equivalent at all." and then politely decline.
Just fyi, maybe I misunderstood.
Can I ask what number you went with?
The reason I ask is I don't live in the Bay Area and do live in a lower cost of living area [but still not cheap] but the figures for any decent senior engineer here are still $100k+.
I mean, the broader question seems to be, is this just a thing we're going through or has the world changed and are developers just demanding more money for the kind of work you're doing?
In retrospect it may have been more important to get your foot in the door of a company or industry that you wanted to stick with for a career. Alternately, if you get paid a lot when you are young it becomes your quote. In my experience, people who don't get paid a lot at the start tend to get paid less for the rest of their working lives.
I definitely know folks who claim Bay Area $ to be $60-$70k and play the numbers game... but then they play the numbers game (and 3 isn't a numbers game).
https://news.ycombinator.com/item?id=10948416
1. That was deemed illegal and they've stopped.
2. Salaries are not being kept down in SV. The whole topic here is that they are out of control. Have you actually tried to hire anyone? I have. Even people that telecommute from low cost of living areas want SV salaries. I've had to go outside the US for my last 2 hires.
that is called market economy. Whoever can use programmer more efficiently and thus pay higher salary would get that programmer. In a big picture, using a resource less efficiently means pretty much wasting it. Do you make revenue per programmer like Google? If not, may be you need to look at where is a waste in your business process. Your employees wanna be productive and as result wanna do a lot of money for you and the themselves. You owe them efficient organization of business.
> 10 years ago the pay we offered was competitive,
the point of technology industry is to facilitate the process of natural selection out of anybody anywhere who hasn't changed in 10 years.
I'm not trying to offend you. I've been sitting in my current BigCo for 4 years already, and see how i myself starting to be the candidate for being selected out if don't do something in the near future. 10 years is a historic epoch in the industry. The industry did look completely different back then.
The best advice for those of you getting paid $150+ an hour is save your money and don't take on long term liabilities.
Also, $150 /hr is a pretty low rate even in the leanest of times.
EDIT: Really surprised at the down votes on this. What I'm saying is hardly radical. There seems to be a lot of sour grapes in this thread sadly.
My tip: don't envy those doing better than you, learn from them.
I am reminded of that lovely remark once made by Boris Johnson's, London's blond bombshell of a mayor, when asked about his £250,000 a year contract to write a column for The Daily Telegraph: "It's chicken feed."
$150 /hr is basically the least you're going to want to charge. Realistically you're going to be looking at 90-120k /year depending on how much work you land at that rate.
For highly skilled intellectual work, that's not very much money.
It is not what you "want to charge", it is what they are willing to pay you, that counts.
Around here in the midwest, under those long-term circumstances, many contractors don't hit the three figures. A whole lot of senior devs around here are slumming it at a $50-$80/hr range.
That was my point about how $150 isn't some insane amount of money. Depending on the length of contract, it may be almost nothing at all with the overhead factored in.
Out of curiosity are those senior devs keeping their skills up, or are they programming in Java/.NET or something similar?
At those rates I'd definitely be interested in taking a look at their CVs since I often need to hire developers. It's WAY below market.
There's a lot of folks like me who program on older, non-sexy, maintenance roles on established systems which use older technologies. Outside of big cities, these positions don't generally command a big wage.
That's my point. As a developer (especially a contractor) you must always be learning new things and technology. It also helps to specialize in a field/domain.
If you're a senior developer you could absolutely make double $60/hr as a contractor by just focusing on the business side of contracting a bit more.
I've been paid $109k a year for work on Smalltalk. And yes, it was this century, in Houston. (As of this writing, 4th largest city in the US.)
Those two things aren't mutually exclusive. There is very good money to be made consulting at the enterprise level doing Java/.NET or something similar, but you also have to keep your skills up.
What happened to contractor pay in 2000?
My experience is most of these people will leave the industry. Very few have the skillset to become an independent contractor because of all the sales and marketing involved (in addition to the tech skill set you're actually selling).
> What happened to contractor pay in 2000?
I have no official data, but I was contracting at the time and continued to raise my rate a reasonable amount at semi-regular intervals (every year or two). During that time, people needed to get work done but they wanted one super contractor to do the work that a team of middling engineers used to do, for 1/5 the cost.
That's good advice, regardless of how much you earn (but it might need a 'save your money when you can').
Spending money when you don't actually have to is a bad strategy when you're young and you can still materially alter you later-in-life situation with relatively little funds.
That's why I hate student debt of any form, it saddles those that would benefit the most from some savings with debt so they can't start to save until they're in their mid 30's or even later.
> I hate to invoke schadenfreude here, but the past few years have been incredibly insulting to those of us who have been running highly profitable bootstrapped businesses, and so I eagerly await this flush.
I wouldn't say its insulting. Business is business. You'll have a company when this mess implodes, they won't.
Even some of the more legit "unicorny" companies like Dropbox have issues. I've been a happy user of Dropbox for many years, but they refuse to provide a service offering that I can actually justify paying for in my personal life. And while they have an awesome service, they refuse to make the security investments that would allow my employer (who desperately needs a good solution in the space) to give them money. Anecdotally, I've found a few people with the same takeaway -- they want to give them money, but can't justify it at home or deal with service gaps in a business settings.
OneDrive claims to do this at the service level, but the implementation is poor and the controls aren't very robust when you implement. (Unless you buy Azure AD and double the cost or wait for their rewritten sync engine) Google & Box (although Box wants a high premium $$) are a lot better, but Dropbox is still best in class for sync.
In some cases, we are forced to throw features away. For example, we have some users where a solution that encrypts data, limiting editing & search capability is a requirement for some information.
Beyond that, a broader concern that would be of interest to me would be narrowing the scope of some of Dropbox's features like dedupe and "forever" files. (It's been awhile since I looked, so this may have changed) I would prefer a solution where there was a key isolating our data from other data in the Dropbox cloud. (bonus points if we controlled that key) That way, nobody outside of our enterprise would have a way to know if a specific piece of information was already uploaded to Dropbox.
To me, it's great tool for a single person or a team of 8-25 people. It's missing stuff and is expensive for a real big org, and doesn't scale low enough for a family. (at least at a price that I'm willing to pay)
No one bats an eye at Google Docs today, but when Corel tried to do it earlier, they suffered for it. It takes time for markets, people, and processes to adapt to new ways of doing business.
Why aren't there more publicly traded "Venture Capital" firms?
Transparency, investor scrutiny and ability to vote out the board is good thing.
Silicon Valley would benefit by having good old fashioned one share, one vote governance
It's utter bullshit that advertising is good for the web because it gives us stuff "for free": https://news.ycombinator.com/item?id=7485773
that isn't a secret, that is a celebrated strategy of "fake it until you make it"
Valuations and market corrections aside, this comment is the thing that resonates with me the most. I got into tech and the Internet as a kid in the early 90s because of all the cool, intelligent weirdos thinking about and building the future. I've been traveling out to SF for about a decade now from NYC to do work, and it's been sad to watch that city go from a place I thought could be the only other place besides NYC I could live to a city I try to avoid. It feels like it's getting harder and harder to find those awesome weirdo hackers. The homogeny is brutal in SF.
The one upside is that it's still the Internet and I don't have to be there physically to enjoy the parts of it I like.
I write it off a lot of times as social awkwardness - which sometimes comes off as rudeness.
> Here’s the Damaso Effect. [...] They come from the colonizing power, which is the mainstream business culture. This is the society that favors pedigree over (dangerous, subversive) creativity and true intellect, the one whose narcissism brought back age discrimination and makes sexism so hard to kick, even in software which should, by rights, be a meritocracy.
https://michaelochurch.wordpress.com/2014/01/05/vc-istan-8-t...
Right on. I remember being in Noisebridge, just after moving to the Bay Area, basically being snubbed and bullied by a poster child for "The Nerd-Jock Convergence." And that isn't even the worst story I can tell.
I've run into as many delusional, arrogant people on coke here in the Bay Area as I did going to an Ivy League school in the 80's. That's not an exaggeration, sadly.
You can easily tell apart CS majors and business school types.
2. Or the idea of "weirdo" itself has changed in a way not recognizable to aforementioned observer. Namely, "weirdo" may not be an ostentatious display as it was in the 90s but something entirely different...
Wasn't that inevitable though?
There's a lot of money at stake, but the number of affected people is relatively low, isn't it? I understand why HN readers are interested in this, but is it a big story outside of tech circles?
If nothing else this article does a good job of demonstrating why its important to always check your sources and their biases.
[1] as in, not believable
And as for the calls. We don't get them directly from the company. It's banks who are organizing pooled investments.
I have done zero digging, but it doesn't shock me that people at JP Morgan and other investment banks are making calls to their private wealth management clients to offer them shares in large private 'unicorns'
Here, the banks don't buy a stake in Uber until they arrange the pool of investors. Or maybe they are selling shares from other clients who want to get out of the investment.
It's doubtful the banks themselves have Uber equity on their books.
http://qz.com/305996/all-the-ways-investment-banks-are-cozyi...
With term sheets the way they are with liquidity preferences if I as a VC invest $100 million in a startup for a 10% stake at a 1X liquidity pref, the valuation I'm placing on that startup is $100 million and that is therefore what its reported valuation should be.
No need for any repricing of these startups - just report their true valuation as largest amount invested with liquidity preferences.
Edit: Just an additional point to add - If I really valued it at $1 billion I wouldn't need the liquidity preference.
Many people got very rich from Facebook gaining such high valuation before IPO. And now many other VCs want to replicate that kind of sort of almost ponzi-scheme type of investment.
> I reached out to an investor in impossible startup I had talked about previously. Had a long phone call today, in which he explained to me he didn’t invest because he thought they’d ever be a viable business. He invested because he thought between their pitch/charisma and the names of the investors backing them they’d be able to get several rounds of funding, and he’d be able to cash out.
That is: there's so much VC money sloshing around that hoping for a Greater Fool literally counts as a business strategy.
Well, that's kinda how it's supposed to be. That's why expected value is more important. A few $200+ billion Facebooks and Googles can compensate for a lot of smaller $1 billion failures.
I didn't realize that there are this many unicorns. Or is this a typo?
They may be valued at $1B+, but they're not worth that much.
This company alone has convinced me that the term unicorn means very little.
If the businesses are based on bullshit, then he's probably right. If the valuations truly are wildly out of control (and it does seem like it), then sure, they're due for a correction.
It's also worth keeping mind that if there are 144 of these startups, 90% of them is 129. That doesn't add up to that much money in SV terms. This seems like a tempest in a teapot. People love to make headlines, it seems, with "OMG bubble OMG!"
Not that such a geographically and industrially concentrated collapse wouldn't be a big deal, and it surely would have broad secondary effects.
Doesn't this ratio seem about right for any basket of unprofitable (or even zero-revenue) high-growth companies regardless of valuation? If those 14 winner companies average greater than a 10x return then everything pans out as expected--lots of risky investments together produce a reliable if more modest return on investment.
It seems like the only abnormal aspect is the size of the valuations, but that might be just what happens in a low interest rate environment--too much money chasing too few deals. Whether this affects this success rate of these investments remains to be seen I guess.
Well, here's what we learned in 2008 - in a down market, it's possible for _way_ more than x% of people to default all at the same time.
I was just trying to point out that it's not impossible for the current crop of unicorns to produce big enough winners to outweigh the failure of the rest.
I'm definitely skeptical that this will happen though, because the winners would have to be really big (hundreds of billions in actual market cap in the public markets) in order to make up for the really big failures.
But the real problem with bubbles isn't that loser companies are pumped up, but real profitable companies are way overvalued too. During the dotcom crash Microsoft lost half its value. It was a winner. It had massive profit margins the whole time.
So Uber may be in the 10% success. But if you invest right now, it might be worth half as much in 5 years.
You saw this with hedge fund managers and the stock market as well. Lots of hedge fund managers went on and on about how irresponsible Bernanke was because he kept interest rates low which raised asset prices.
To be clear, I don't think this is a nefarious or even conscious process. However, I think if someone really wants a particular scenario it tends to color their thinking.
Also the actual claim made isn't as sensational as the headline. Just says that 90% might take a lower valuation. All that requires is a general market decline.
Anyway, take a look at the list of unicorns.
http://graphics.wsj.com/billion-dollar-club/
If the buying price of Y goes on a 75% sale, while the selling price of 10Y also goes on a 75% sale[1], the VC makes 75% less money.
[1] Things usually don't go that way. Smaller prices tend to fall less than big prices, and the VC will almost certainly get into the negative.