Tech can't remember what to do in a down market

[bryanlarsen]

In 2001 tech ran almost exclusively on recycled VC/IPO money. A company got VC or IPO money, they spent money on ads, the ad company spent money on hardware, the hardware company spent money on ads, and around in a circle it went. When cheap capital disappeared, so did the whole industry.

In 2020 there's a lot more VC money, but there's also a lot more real money. A recession isn't going to stop people from buying diapers on Amazon.

So I don't think the next crash will be as bad for tech as 2002 was. It is going to be a lot worse than 2008, though.

[zozbot234]

Plot twist: Amazon was around in 2001, too. No diapers yet, but they were selling plenty of books.

[WhompingWindows]

Why will the next crash be a lot worse than 2008? Do you mean for tech specifically or in general?

[guiriduro]

The question should really be: why should the availability of cheap capital condition whether a tech business is viable or not?

That's not to say that coronavirus doesn't pose systemic risks by itself and can have significant effects on consumer behaviour regardless of the VC rumour mill and financial market sentiment; just that these are increasingly irrelevant since bootstrapping, crowdsourcing and lean startup provide better incubation for good tech business ideas than the more capital intensive planning that went on in the dot com boom/bust.

[JumpCrisscross]

> why should the availability of cheap capital condition whether a tech business is viable or not?

Cost of capital, fundamentally, measures forward-looking risk. (Ideally, unavoidable risk.) A business that would succeed in a stable environment may not in a volatile one.

Set the rate too low and you waste resources. Set the rate too high and you pass on good opportunities. Hence society's interest in measuring this metric accurately.

From a microeconomic perspective, cutting lean when your competitors are buying market share is risky if the next few years will run smoothly. Likewise, burning cash while your competitors build balance sheet is risky if a recession is around the corner.

[soneca]

Bootstrapping still means that I, as an entrepreneur, am willing to invest my time and money on an environment that might have a reduced consumption in the future. If I have the same risk assessment, I would be better keeping my day job before going full-time on my idea

Appealing to crowdsourcing you are just saying that you hope less sophisticated and seasoned investors (the crowd) is willing to give you money while professional investors that are paid to assess risk (the VC) are not.

[nabla9]

Adding to what JumpCrisscross said:

Capital is cheap when business viability is high. If there is economic downturn and demand deceases, fewer businesses are viable in the new conditions.

If aggregate demand decreases ROI from ideas decreases.

[ttul]

The reason the 2008 recession didn’t impact Silicon Valley very much is because tech was still struggling to come back from the devastation of the dot com bust. In 2002, I recall there being 50% office vacancy in the valley in some areas. It was scorched earth.

[PopeDotNinja]

As a former tech recruiter, I can say that March of 2009 was not a pretty time to be looking for work. A lot of people got the axe, and developer supply outstripped demand for a time. I remember posting one ad on craigslist for a Sr. Software Engineer for a seed stage startup in Mountain View and getting 66 applications within a very short period of time, and the candidates were mostly pretty good. Getting that many qualified candidates was very unusual at that time.

[altoidaltoid]

The furniture auctions were insane. Aeron chairs everywhere.

[lambdasquirrel]

There have been some good arguments that when the downturn hits, it’ll be less of an exciting and satisfying bubble pop ;P, and more like a slow burn.

http://reactionwheel.net/2015/01/80s-vc.html

[icedchai]

Late 90's, early 2000's were an insane time. I remember working at a startup that raised 25 mil, barely had a working product, no actual customers in production. They spent about 3 million upgrading office space, including fancy furniture like Aeron chairs. The company was valued at near 100 million. This was an early SaaS company, referred to then as an "application service provider" (ASP.) About 3 years later the company was "sold" for less than the cost of that office space renovation. Common stock holders got zero. Fortunately I only bought a small fraction of my options when I left.

[rchaud]

Only the FAANG companies and some enterprise-focused businesses (Salesforce), all formed > 15 years ago, can be said to be 'booming'. The rest can't feasibly be profitable without ducking municipal and labor regulations (Uber, Airbnb), or requiring eye-watering sums of money to establish the monopoly position they need to take themselves into the the black (WeWork, Uber).

Is it still a 'boom' if valuations can collapse on the opinions of a single large investor (Softbank)? Or if Uber walks back its glittering visions of self-driving cars to focus on e-scooters and food delivery?

[Ididntdothis]

It’s really weird that tech is in a state where almost all of the stars even after being 10 or more years old still don’t have the slightest idea how they could make money. Things won’t be pretty once the investor money stops flowing.

[LarryDarrell]

B2C idea that might be robust: Subscription based flu mask delivery service.

[throwawayhhakdl]

Subscription is the opposite of what you want for a product that nobody wants 95% of the time but then everybody wants 5% of the time. As a supplier you would be locked in to selling at a given price while your costs skyrocket.

[BubRoss]

Or a crypto currency backed by tamiflu.

[jameslk]

> Advertising and media: Marketing budgets are easy to cut fast, and media outfits dependent on those budgets feel the pain the fastest.

If a recession materializes, it will be interesting to see what happens to the advertising revenue-reliant companies stock prices of Google, Facebook and to some degree Amazon. It will also be interesting to see what happens to the home prices in the Bay Area if salaries paid in equity in these companies are no longer going up, but going down instead.

[yellow_lead]

The implication that this is a down market after a few days of down movement is laughable. Could be a self fulfilling prophecy if the media keeps fear mongering this way.

[thrower123]

Is it a down market? The bounce is already starting after two days of panic.

[mcfunk]

"Yes, but: Two days of 3-percent-plus losses in the market don't constitute a downturn, or even, in technical terms, a market "correction" (which is defined as a 10 percent drop).

* Markets took a dive in late 2018 on recession fears, only to come roaring back. * Today's financial world is still awash in cash, which could provide a calming buffer. The venture capital world is still looking to invest huge amounts: Per Pitchbook, funds raised a record $88.3 billion and $75.5 billion in 2018 and 2019, respectively. * In some cases, smaller companies started laying people off even before this market drop, so they might be able to weather it more easily."

[untog]

The only true answer is “TBD”. By all indicators the coronavirus has the potential to have a huge impact on people’s lives and the ability for markets to function, but it’s not yet clear how much of that potential will become reality.

[czbond]

They call them sucker rallys to sucker people in to thinking the pain is over.

[jerf]

I'd give it a bit before calling that. Early yesterday morning was up a bit too.

The ideal time to call whether this is an up or down day is probably around 4:01pm EST.

[hylaride]

Articles like this make me think. There is most certainly a generation of tech workers that have not truly experienced a recession or bad times.

I came of age in 2000, but missed the worst of that crash as I was in school. When I graduated in 2004 things were starting to pick up where I lived (Toronto), but it was nowhere near like it has been for the past 5 years where simply updating your LinkedIn profile would cause a flurry of recruiters to inundate your inbox. The 2008 recession both didn't hammer Canada as bad (especially outside of traditional manufacturing) nor tech really much at all.

My generation of tech workers have simply not known hard times. Many of my college colleagues are obviously not saving and drive $90K Mercedes and live in very nice houses that would stretch tech salaries (Toronto is a bit insane with housing prices right now).

I have no idea if coronavirus, Trump, or what will cause the next recession nor do I know how bad it will be, but if it does impact tech workers, a lot of them are going to be unprepared, I think.

[linuxftw]

> My generation of tech workers have simply not known hard times. Many of my college colleagues are obviously not saving and drive $90K Mercedes and live in very nice houses that would stretch tech salaries (Toronto is a bit insane with housing prices right now).

Why should they save and live frugally? Canada is very socialist, their quality of life will be maintained by the government when things go south. The point of being rich is to live like a rock star. If you can already live like a rock star, you can skip the getting rich part.

But let's say they do save money. It's just going to get eaten away by inflation. If they buy property, it's going to get taxed.

You can either live now, or save lots of money and so stuff in old age. Of course, you'll never get to have the time back, and I'd much rather experience life in my 20's and 30's than in my 60's and 70's.

[bedhead]

Folks, it's the flu. We don't have a cure for the flu either. You catch it, you feel awful, your immune system fights it, after a few days the virus runs its course, and then you're fine again. The people who are die from the flu are some combination of old and already infirmed. Same as coronavirus. And every year something like 10-15k people die from the flu but we manage to keep our cool. The disconnect here is really wide. I'm not worried about the coronavirus, I'm worried about all the alarmism and the overreaction it might cause.

[samvher]

18% of cases end up serious or critical. Out of cases with an outcome, for 8% the outcome is death. [1] It's not just the flue. I agree that there should be no overreaction and that that part might be more worrying but it's pretty serious.

[1] https://www.worldometers.info/coronavirus/

[usaar333]

It's basically a version of flu that happens to be both 20x as deadly and more transmittable!

[estro]

A flu with 20x reported mortality rate caused by a virus with a significantly higher infectivity than influenza virus is something you should be worried about.

Note: data is from current cases, may vary as more data is accumulated.

[ashleyn]

Apple reported supply chain disruptions. If the government overreacts to a virus and disrupts supply chains over it, that's still a material impact on the market independent of the actual severity of the virus.

[vsareto]

You're ignoring the long incubation + contagious + lack of symptoms period.

[ceejayoz]

Also "just the flu": https://en.wikipedia.org/wiki/Spanish_flu