Who Will Be Hurt Most When the Tech Bubble Bursts?

&gt; But not Mark Cuban, one of the renowned moguls in the VC world.<p>Mark Cuban is certainly a renowned Angel investor, but not a VC.<p>&gt; For instance, Uber moved from $17 billion to $40 billion between the two funding rounds within six months.<p>Amazon, a public company worth ~200B billion dollars, is up 40% in value in 5 months this year. Valuations can change very quickly in technology companies, whether public or private.<p>&gt; This bubble is bound to burst.<p>Ok, well I guess that settles it!<p>&gt; Take Uber and Airbnb for example. Both co-founders ... wealth was calculated on the basis of notional post-money valuations, figures far in excess of what these companies could actually be sold at in the market right now.<p>Uh, says who? Both of these companies make tons and tons of money and have business models that make sense. Whether or not they are good for the world, they are certainly good businesses. What makes you so sure the valuations are wrong? All of the late-stage investments in Facebook worked out pretty well.<p>&gt; VCs will most likely walk away with their invested money, if not more.<p>A VC who returns the initial fund amount (or even a small gain), over 10 years, is losing their LPs tons of money to fees and inflation. LPs will not invest in that fund again, and one bad fund has ended a lot of VC careers. Granted this is probably good for the world, but not for that VC. Saying a VC has liquidation preferences and thus they are immune from any negative consequences to a bad investment is ridiculous.

It&#x27;s a pretty simple situation. Zero and negative interest rates are causing enormous sums of capital to chase yield through non-traditional sources. Sand Hill Road VC&#x27;s have a good pitch and connections, so they wind up with a significant portion of that capital. That capital has to go somewhere, so the VC&#x27;s basically use the Stanford admissions process as a proxy for screening, and they give anyone that has been admitted and can get an app written huge amounts of this money. VC&#x27;s haven&#x27;t suddenly gone crazy; they simply find themselves drowning in money that they have to deploy.<p>Some of these companies will undoubtedly be successful, as the ability to spread virally and scale the IT infrastructure to meet demand these days is absolutely unprecedented. That is the primary difference between the first &quot;bubble&quot; and now. It looks the same in terms of frothiness, but anything that delivers real value to people these days will spread very fast, largely for free, and may actually become profitable.<p>Whether or not the value of the successful companies that emerge from this era will make up for the massive losses of those that fail remains to be seen. I think it&#x27;s actually possible. The real losers will be the engineers, because when interest rates rise and people pull money out of these funds, all but the most promising companies (in terms of actual traction) will see their funding vanish, and millions of people (thousands of top engineers among them) will be out of work.

Question from a new-comer: after the first bubble burst, was it difficult for a solid developer to find work in the valley? How much did salaries drop?

I found the fundamental point pretty insightful, that its going to be weird if you are a founder of some company that is saying its worth a couple of billion and you&#x27;ve got a few percent of the common stock equity, that &quot;feels&quot; like you are rich[1] as your &quot;projected&quot; net worth is millions. And then the bubble bursts and you aren&#x27;t anymore. If you have your self identity wrapped up in that then having the bubble burst will be really hard to handle.<p>[1] Been there done that :-)

Great article. Curious if the tech bubble is gonna burst say sometime in the future, what do you think the best options would be to weather the storm?<p>Obviously, VC-funded startup&#x27;s with no cash-flow and only one or two years of funding will be the first to go (dot-com comparison: pets.com, WebVan), then next will probably be any relatively new consultancies (dot-com: Razorfish, coding schools of the late 90&#x27;s that taught people for MCSE&#x2F;CNAA certificates).<p>Next in line to fall is unclear, all the hardware and network infrastructure companies suffered in dot-com (e.g., Sun, Cisco) with layoff&#x27;s due to no demand anymore to buy expensive high-end servers and routers. But today with the cloud infrastructure, would AWS division, Azure or IBM be able to weather the storm?<p>On the other hand, peeps I knew who were able to weather the storm were people who had critical domain knowledge in a stable or booming industry at the time (e.g., HPC specialists for defense contractors, Bioinformaticians working for the Human Genome Project, system developers for high frequency trading right after RegNMS). Unfortunately, cycles have also turned for these fields too and demand has matured or waned.<p>Curious what you guys think are the next &quot;unsexy&quot; but potentially lucrative fields that has demand for IT workers and should yield fruit in the next 10 years that you&#x27;d angle for, if you were starting anew? Farm tech, AdTech, FinTech, personal genetics therapy, or even plain old but reliable fields like oil &amp; gas, healthcare or e-discovery?

Can&#x27;t believe I&#x27;m wading into a &quot;bubble&quot; thread:&#x2F;<p>Here are my thoughts. Disclaimer: I&#x27;m just some guy. epistemological confidence: low.<p>There may be a bubble in consumer tech. There isn&#x27;t a bubble in tech in general.<p>Consumer tech is weird right now because consumers are so weak. Bob the plumber has a laptop (good!), he&#x27;s using a WIMP interface (not good!), but he knows a little Excel (great!). All in all he&#x27;s a reasonably empowered internet citizen with a real internet presence.<p>He closes the lid. BLAMMO! He now has has zero internet presence under his control. Not a single thread, not a single cron job, nothing. He&#x27;s lost the most basic information organization functions: &quot;share&quot;, &quot;receive&quot;, &quot;do at this time&quot;, &quot;do repeatedly&quot;, etc.<p>Instead he has to rely on others for all those functions. These are really basic functions. Like &quot;baby food&quot; level. If he&#x27;s so helpless his computers can&#x27;t handle something as simple as &quot;do something at 5:00 tomorrow&quot; reliably, of course he&#x27;s going to get taken advantage of.<p>Pinterest, Dropbox, AirBNB, Slack, Evernote, Facebook, LinkedIN ... all exist because users don&#x27;t have servers. If personal servers take off, consumer tech will pop. Of course, normal people aren&#x27;t going own UNIX servers ever. Sandstorm though . . . that&#x27;s a lot easier to set up than a Linux box.<p>(I don&#x27;t think tech in general is a bubble though. &quot;Software is eating the world&quot; seems entirely accurate to me.)

The article does not separate VCs themselves from the investors in VC funds. The picture is even better for VCs than the actual investors. Whatever happens, they are currently collecting their 2 to 2.5% management fees. Huge valuations are advantageous to them as they allow much more capital to be invested and more fees to be collected.

More specifically, it&#x27;s departed employees.<p>Current employees have had it drummed into them enough times that the EV of their equity stake isn&#x27;t likely to be significant and they should negotiate for cash over equity. Worst comes to worst, their options go underwater but they&#x27;re still highly compensated professionals with in demand talents.<p>Founders knew the risks when they negotiated the terms of the funding round and they have nobody to blame but themselves if they got too greedy with spending.<p>Departed employees though, have to face the choice of whether to exercise options before they expire or forego them and potentially lose out on a huge payday. They&#x27;re the ones who have to put up real cash into the system for paper gains.

This is a very lazy article. It makes a lot of broad and sweeping claims, but doesn&#x27;t have any evidence to back it up.<p>Most importantly: why is this bubble worse than the last one for employees? Employees all had stock in the dot-com bubble as well, and were equally wiped out when it burst.<p>Personally, I think this argument is much less feverish than the last one. Unicorns might not be profitable, but they&#x27;re generating substantial revenue. Uber has a crazy valuation, yes, but they&#x27;re also making $10 billion a year in revenue. [1]<p>[1] <a href="http:&#x2F;&#x2F;www.businessinsider.com&#x2F;uber-revenue-rides-drivers-and-fares-2014-11" rel="nofollow">http:&#x2F;&#x2F;www.businessinsider.com&#x2F;uber-revenue-rides-drivers-an...</a>

Glad to see articles like this, I&#x27;ve had the same point of view for awhile now.<p>At least uber has revenue though. Lots of companies are getting funded with zero revenue (nevermind <i>profit</i> for now) and no clear revenue model. Crazy in my opinion.

There&#x27;s been a lot of talk lately about a possible tech bubble. Does the HN community think we&#x27;re in one? I wanted to create a poll but keep receiving error 504. Maybe someone else could create one. I think the results would be interesting. - Update: Fixed that.

It&#x27;s probably technically wrong, but still, I can&#x27;t escape from the thought that someone selling a zero revenue idea to an investor for a few million dollars is no different than someone selling a stock short. When a bubble bursts, the short sellers make out.

Update: Please vote on this poll if you think we&#x27;re in a tech bubble: <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=9597656" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=9597656</a>

Shouldn&#x27;t that be &#x27;bursts&#x27;?<p>And does this mean that TC feels that we are in a bubble?<p>And if so why?

I notice the &quot;Not VCs&quot; portion of the original title has been removed here.

the appalling grammar in this article displays zero editorial effort