startups

So this is how the tech bubble finally ends – Economic Times


By Eric Newcomer


The tech bubble is popping, but not in the way anyone expected. After years of fretting that free-spending startups with unrealistic valuations would bring down the startup economy on its own, a global pandemic is doing it in instead.

Tech layoffs are accelerating. The New York Times dubbed it “the great unwinding” and one reporter tweeted “here comes the pop.” Of course, this isn’t the dot-com era, where Silicon Valley stood out from the pack for its wild exuberance. Boeing Co. seems more imperiled than Uber Technologies Inc.

We might never be able to disentangle what would have happened without this crisis. Would the bubble have burst another way? It feels like a distant memory when in January I took stock of former Y Combinator President Sam Altman’s narrowly defeated bubble bet.

At the time it looked like enormous funding rounds for the biggest startups had gotten out of hand, but that many companies were still extremely valuable. Only a few months later, that period looks like the moment just before the peak of the market. Now venture capitalists are hoping to help the companies they’ve invested in score government loans.

In some ways, the poster children for this tech run-up had already been chastened. WeWork had much of its dirty laundry aired and its CEO deposed last year. Now, its business model faces serious challenges for reasons that are hard to blame on the company. It’s unreasonable to expect WeWork to have predicted Covid-19, but it was spending money in a way that certainly didn’t protect itself from this black swan event.

This week, SoftBank Group Corp. backed out out of a $3 billion deal to buy WeWork stock, which means that Adam Neumann, WeWork’s former CEO, isn’t even a billionaire anymore, according to an analysis by Bloomberg.

SoftBank cited regulatory concerns and government investigations, not the collapsing market, as the reason for the move. Those problems would have existed without coronavirus.

The hype around scooter companies had already been fading. It turned out that winter, with all its snow and ice, wasn’t great for tiny two-wheeled open-air vehicles. Now that spring is here though, everyone is in lockdown, and so layoffs are underway.

WeWork and scooter sharing were prime examples for people who wanted to argue that startups had gone too far. Now they’re plummeting in a way that feels existential. The question is: were things headed this way already or was it the exogenous shock? People will probably be debating that well into whatever boom comes next.

And just as in the aftermath of the last crash, the seeds of that next boom may already be being planted. Zoom Video Communications Inc., the video conferencing service, revealed this week that it had gone from 10 million daily active users to 200 million thanks to the crisis. Grocery delivery has become an essential service. Amazon.com Inc., is facing plenty of criticism for its treatment of workers, but the company is the backbone of the American way of life.

Everyone is stuck at home watching the “Marvelous Mrs. Maisel,” searching for thermometers, masks and toilet paper on Amazon Prime, and streaming themselves on Twitch. Tech valuations may be down and some sectors of the industry look very imperiled, but Silicon Valley didn’t collapse under its own contradictions. It turns out this time was different after all.





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.