David Bowie passed a week or so ago, but this is not about that. Yes, those are lyrics from A Space Oddity and good advice, but this is about buckling up and holding on tight. We’re in for a bumpy ride, all things considered. Just this past week for example:
Twitter, And Pretty Much Everyone Else, Had A Bad Day (and note that these are primarily California-based companies). But taking the view from 10,000 feet, we don’t believe that it’s all doom and gloom and time to take a look at the bubble equation/parts of the tech economy that have not been part of the fictional narrative, aka, tech reporting.
Tech faces hour of reckoning as fundraising drops, layoffs rise, USAToday reported and true, “there is definitely an era of reckoning,” says Chris Sacca, a venture investor with stakes in Uber and Twitter. “Reality is setting in.” ‘The number of mega-deals of at least $100 million — 38 in the fourth quarter of 2015 — was roughly half the 72 in the previous quarter, according to the KPMG International & CB Insights 2015 Venture Pulse Report,’ the piece went on to report. And yet, In Q4, VCs Kept Funding Young Companies But Slowed Later Bets.
We know that there is a preposterous number of so-called unicorn companies, and we do pay attention to the number of companies outside of Silicon Valley that are getting funded. For example, on January 15th, Strictly VC reported on no less than six NY-based companies that had raised funding: CourseHorse ($4M Series B), Estimote ($10.7M Series A), Foursquare ($45M, Series E), Inturn ($9.7M Series A), KeyMe ($20M Series B) and PolicyGenius ($15M in Series B). And not that companies in other tech hubs didn’t raise a fair share of funding as well.
Alessandro Piol spoke at our last Investor Breakfast, and we were reminded of a talk he gave (and on which we personally reported): NYC: Tech Hub of the Future? “Boston used to be Tech Central, but lost its mojo to Silicon Valley, as Alessandro Piol said, and unlike Boston, “Silicon Valley was informal; fostered a sense of community; it was easier to find partners there; and there was more job mobility. Stanford encouraged startups, and the area’s investors were more tech savvy, as opposed to Boston, which was uptight and formal, more protective and insular; where job-hopping turned you into a pariah, MIT extracted a bounty for technologies developed on its campus and the VCs were less technical.”
That might have been then, but things have changed in SV a bit, and they’ve become insular in their own way: Everyone eats at the company cafeteria. They wear the company tee shirt. They live in company housing. And they ride the company bus. As this article states, “Every day, Silicon Valley engineers are insulated from the everyday experience of everyone else. Their food is free, their haircuts are free, their snacks are free, their apartments are cleaned, their laundry is folded, and their commutes are always on time and the wifi is always fast. Life is made frictionless and painless” (Silicon Valley Gets On The Same Bus Every Day — Innovation Needs Diversity). Innovation does need a bit less of the homogeny from which Silicon Valley seems to suffer, and more friction. As for diversity, in case you missed it, take a look at this: The importance of immigrants to Silicon Valley in one chart. It’s called ‘cheap labor’ and note to self: Spending Bill To Quadruple H-2B Visas In 2016. “The H-2B visa was designed to bring in low-skilled, temporary and seasonal workers. This provision would increase the job competition for some of America’s most vulnerable families during a time when jobs are still hard to find for lower skilled jobs. Employers like to hire H-2B workers because their visa is tied to the company, which prevents many from complaining or unionizing when mistreated. Recently Buzzfeed did an expose on the H-2B visa and how it replaces American workers and exploits foreign workers.” Where this is leading depends on your definition of fwd (sic).
Not to mention that there’s No Evidence of Labor Shortage in H-2B Occupations.
The Web 1.0 tech bubble exploded in Silicon Valley first and hit that coast much harder than it did New York. But that was then and this is now, and we will remind you that there weren’t as many tech investors on this coast during the first dot com era as there are now. The general economic indicators aren’t great, but New York investors – and investors elsewhere – haven’t taken quite the same approach to investing as has California investors, going for traction (re: eyeballs) over business model that might stand a chance of leading to building a self-sustaining company. Nor is NY – or other tech hub cities around the world – a one-horse town. Or selling out their brain trust in pursuit of cheap labor. No one stays on top forever and while there’s no doubt that the market corrections will have a global effect, given their accesses and unbridled over-reaches and manipulations, from tax evasion (Apple May Be on Hook for $8 Billion in Taxes in Europe Probe) to creative accounting (Amazon And The Fantastic FANGs——A Bubblicious Breakfast Of Unicorns And Slippery Accounting) to out and out censorship/invasions into our freedom of speech (How Twitter quietly banned hate speech last year) and political machinations (Google employees average one White House meeting per week under Obama), the times are definitely changing, and part of what you’re feeling may well be merely the Silicon Valley power grid finally going through a long-overdue correction. Onward and forward.