Will a Tighter Economy Rein In Startups?

Nerval's Lobster writes: It's been quite a ride for the stock market this week. In China, markets cratered; in the U.S., stocks dove for two days, only to rebound on Wednesday. That made many tech firms nervous, both about the Chinese economy (which some of them depend upon) and the continuing flow of money from VCs and investors. While the economic jitters don't seem to be affecting some tech firms' ability to implode themselves, more than one pundit is wondering whether the tech industry will shift into 'fear mode,' which could be bad for the so-called 'unicorns' that need funders to keep partying like it's 1999. Are we going to see money start drying up for startups?

Comments

It won't matter

[pete6677]

We've reached a very perverse point in our history where what's bad for Wall Street is good for America, and what's bad for America is good for Wall Street.

In other words, the fed needs to raise interest rates. It would help everyone but Wall Street.

Re: It won't matter

[Anonymous Coward]

Actually no. That's the problem. The rich do not spend their money. Money being spent makes the economy go. That is why giving economic stimulus to less well of people helps the economy--they spend it. The rich do exactly the economic equivalent of keeping it in a mattress. Sure some don't but most do.

Therefore economic stimulus that benefits the stock market has only a very marginal effect on the real world economy most people live in. Of course conservative leaders know this, which is why that's their favorite kind of stimulus.

So no, you're wrong. Rich people are bad for poor people. What's good for Wall Street was only coincidentally good for Main Street back in the days when we didn't have insane trade policies, when we had effective tariffs, and a government that actually didn't wage economic war on workers all the time.

A prosperous economy is always good for Wall Street and everyone else, but what's going in now is theft from everyone who's not rich in favor of those who are, and this is not a prosperous economy.

On the bright side, if VC funding dries up for silicon valley we can finally stop having to put up with idiotic startups, 20 something "CEOs", and their latest smartphone app that's going to change the world that nobody gives a crap about.

Probably will just make our jobs harder

[Anonymous Coward]

As someone that worked in the tech industry during the recessions in 1973, 1980, 1990, 2001, and 2007, unemployment for people with good tech skills was almost nonexistent during most of those bad times, but it meant you couldn't afford to hire more people. That made things much harder for the people with jobs. I've noticed that during each recession, the number of hours expected has gone up each time. I worked for a loan mortgage start-up from 2006 until 2009, and the expected hours increased from about sixty to nearly a hundred. We were expected to do 16 hours Mon-Thu then 12 on Fri-Sun. At my current startup, the hours aren't that bad yet, but I see it coming. We had more open dev positions than devs! That was until a couple of weeks ago when our largest customer, who is in China, went under. After that, all of those open positions were closed. It looks like we're expected to make do with half of the number of developers indefinitely.

Sad Birds

[Dutch Gun]

Interesting... so Rovio, the makers of Angry Birds, is laying another 260 employees. Let me put that in perspective for you: I've been in videogame development for the last several decades, working on games ranging from bargain-bin titles to well-known MMOs. I've worked at companies with a dozen employees, and nave *never* been at a company with more than a couple hundred total employees (excluding parent company).

I'm just trying to figure out exactly were they doing with all those people... Does it actually require dozens of people to create an Angry Birds game? I'm having a hard time figuring out what they actually *did* with so many people. They happened to strike gold with Angry Birds, and they must have deluded themselves into believing they could strike gold with each subsequent swing of the pickaxe. Oops, the world has moved on to Candy Crush.

If they wisely invested their incredible earnings, they could have created a much smaller company that would have nearly infinite financial backing to do whatever they wanted. Instead, they succumbed to the temptation to grow into a giant by pretending that they could release the same product an infinite number of times. Now the entire world has played and grown tired of Angry Birds, so there's nothing left to fall back on.

Re:not like 2001

[LynnwoodRooster]

That IS like 2001 - the focus on revenue, not profit. I don't know of a single unicorn ($1 billion+ valuation, pre-IPO stage) who's making profit right now. Turn off the flow of VC funds and they close - they cannot continue operations.

Back in the dot-bomb days it was the same thing. It was all about growing big, growing fast, and even if you lost money on every customer/user, you'd "make it up in volume". At the end of that era, most of the companies who had big revenues and negative cash flow either folded or scaled back so far they were sold for literally a penny on the dollar and faded away to obscurity. We'll see the same thing with the current crop of unicorns when the market crashes again. Those who can sustain themselves on existing revenues will survive. The rest will either go away completely, or end up being gobbled up by others for a fraction of their "value".