History, Unfortunately On My Side

Graphic taken from The Economist, "To fly, to fall, to fly again", Issue July 25th 2015. Fair Use.

Silicon Valley is under stress. When is it not? You say.

Well the type of stress has changed. A few years back it was about finding a job in an economically challenged economy.

Now its about finding and keeping a job in an economically accelerated economy. With people questioning whether the "Tech Bubble" is just too big or is about to "POP!" (more likely a series of them, when it comes), with rents at the price of previous mortgage payments, and mortgage payments in the stratosphere, that is sky high! One million dollars for a one-and-a-half bedroom condo? The facets must be only gold plated then, with a robot parking garage and no concierge. How very terrible for you.

I can see clearly now, with my eyes the number of cranes on the skyline, which have doubled and now tripled. There are less parking spaces (thank you city supervisors) and more people needing to park. What about the green bike lanes and red bus only lanes? Some of our streets are just too damn narrow for both cars and bikes, not to mention pedestrians and construction everywhere. Injuries and fatalities can only be up, please be careful out there.

Greed is a motivator and many people are looking to cash in on the economic upswing. Many of the younger people, who are migrating here from another country, H1b, or just from a middle American state, are finding the Bay Area way too expensive to live in. Those tech companies and venture capitalists offering those high salaries and high valuations are clearly driving this change.

What am I complaining about? This is a good thing right?! It is better to have an economic boom, than bust, right . . .Well it depends on who you are and what your situation is, as it has always been the case. Not to quote Spock, but statistically, the greatest good, for the greatest amount of people, over the greatest period of time.

I think back to the last Dot.Com Boom and Bust, and whatever this one will ultimately be called . . . It devastated me, I was making the most I had ever made in my life, working so hard I could barely see straight. Playing hard too!

Maybe that's why I couldn't see straight? When the layoffs came, yes rounds of layoffs! I stupidly hadn't saved any money. Thinking it would just keep flowing, and if I lost a job, my skills where good, I could just get another one quickly.

Well that turned out not to be so. After the bust, the city of San Francisco became a ghost town, literally. Fancy restaurants closed, rents dropped because of the vacancies, and there where no jobs to be had. No work to be done either, no matter what tech skills you had.

After unemployment ran out, having interviewed so many times, I actually began doing work for free "to prove my worth as they say", but still no paying jobs. I did small business websites to survive. Not every business had a website back then. I had to squat at a friends apartment, and even started couch surfing. All the people that had come, had gone, left town for Kentucky or wherever and it was very depressing in the city. We all got really creative just to survive.

Could something like this really happen again?

The old cliche, "Those that do not learn from history, are doomed to repeat it!", seems very relevant to me now. Well a recent article in The Economist, "To fly, to fall, to fly again", says it won't happen the same way or even that soon. But I am not so sure, Whose interests is the article serving? You really should ask.

Let's analyze? Shall we . . . The pace of change seems to be accelerating, and that usually leads to some instabilities. At least until the new dynamic catches hold. So what's really different between now, 2015 and way back in 1999? A decade and a half ago.

To quote The Economist, "Though most technology firms going public today are unprofitable, just as they were in 1999, they have more realistic business models, most are losing money in a premeditated effort to expand . . ." Again, "Last year the average American technology firm that staged an initial public offering (IPO) was 11 years old and had $91m in sales, compared with and average age of four years old, with $17m in revenue, in 1999 . . ."

Whether or not you drink your companies Cool Aid, and truly believe what you are told to believe, and whatever the reason might be, many venture capitalist are investing very large sums of cash in early and later rounds of funding, leading to speculative over valuation. "As waiting to go public becomes the norm, the attraction of investing early grows." "We call [them] 'private market' valuations, but it's not really a market. It's a handful of optimists" who are setting prices, says one banker. "When a young entrepreneur desperate to join the 'three comma' club accepts an overvaluation, he runs the risk of a subsequent 'down round' -a lower valuation when looking for future funding or going public."

Finally, "Today the cast of entrepreneurs is acting like Hollywood stars", "There is a lot of strutting and vogueing for the cameras", a couple examples might be the scripted HBO Series, Silicon Valley, and then there is the real Hit Record, with Joseph Gordon-Levitt on Netflix.

Hollywood is doing its very best to get into the game and put out spin. Look out though, I predict scripted reality TV Entrepreneurs are next! You heard it here first. Here comes all that total BS, and with it public interest in getting rich quick with no real work, or something that ultimately works. Exactly one of the big causes of the last avalanche.

Is the new model for an entrepreneur . . . arrogance, self-centered, the new want to be rich and powerful, unwilling to listen, focused on beating the imagined competition?

Analysis or not, intuitively it sounds to me like a bust is two and a half years away. I can't give you the exact circumstances. It looks like we can't even today, 15 years after the fact.

I remember back to the disappointing election of George W. Bush over the then Al Gore and the disastrous ensuing Supreme Court ruling. Whatever your political leanings, Hillary may become the first women president, but what can she really do if a tech economic down-turn is in the cards?

Here is my advice for survival, especially if you don't want to go back to Kentucky, or wherever (sorry):

1. Try to save your money. Don't overextend financially. Keep debt down.

2. Be good to your friends and family while you still have them, you may be sleeping on their couch just soon enough.

3. Advice that will be ignored. To the Entrepreneurs, Companies and VC's, try to be more humble, more pessimistic and slightly more risk adverse (not your currently common advice, exactly the opposite), slow down your burn rate, and change if you plan to last it out. Competition isn't your real problem now, but maybe your business behavior is? Try not to be blinded to the risks and some basic facts.

Finally, of course I could always be wrong, but probably not this time; history is unfortunately on my side of the argument. Make it on your side too. Prepare for winter early.