Tech’s Reckoning Is Upon Us

"Inflation? Rising interest rates? The lingering pandemic?

All of the above explain the tech stock dive. After the very good times in 2021, the reckoning for tech valuations, as well as start-up funding by venture capitalists and cryptocurrency, is officially here, with all plunging into the Mariana Trench of finance. The only question is whether it is 2001 (the Web 1.0 crash) or 2008 (the Web 2.0 crash) or some new web3 crash.

The canary in the coal mine is how those typically sunny venture capitalists’ Twitter accounts have flipped to earnest talk of “market corrections” and “company right-sizing.”

Most of the big company stocks have been in the tank, with even solid businesses suffering over the past month — Apple is down about 15 percent; Alphabet over 12 percent; Airbnb close to 28 percent. Weaker ones have seen a more precipitous decline; Netflix stock has lost half its value since mid-April.

Oddly, the one staying relatively stable now is Twitter, which spent years being lapped by other Silicon Valley firms. No doubt it’s being propped up by the $44 billion takeover bid by Elon Musk — and yet even that acquisition is in now doubt since the collateral for the purchase rests with his fortune at Tesla. Like its peers, Tesla’s bottoming out, its stock having dropped nearly 30 percent in the past month.

That might make the $1 billion walkaway fee much more attractive to Musk, who could come back when Twitter inevitably craters post-breakup. In the starkest of terms, he should not pay $54.20 a share for the troubled company (it was trading around $45 a share on Thursday), no matter how much he likes to troll.

Oh, but that is not all in the techopalypse.

As The New York Times noted: “The number of people and groups trying to unload their start-up shares doubled in the first three months of the year from late last year,” citing Phil Haslett of EquityZen, which helps private companies and their employees sell their stock. Share prices of some unicorn start-ups have fallen as much as 44 percent in recent months, The Times wrote. “It’s the first sustained pullback in the market that people have seen in legitimately 10 years,” said Haslett.

That has also been accompanied by a significant drop in venture funding due to a fast fading I.P.O. market.

And what about cryptocurrencies, which were booming after a slide last summer? Bitcoin, the most stable, rose to around $68,000 last November, but has fallen off a cliff to just above $28,600 today. The crypto trading platform Coinbase is another big loser, down over 60 percent in the past month. Meme stock catchphrase HODL (“hold on for dear life”) might actually cost you your life, your financial one at least.

As tech’s gloomiest venture capitalist, Bill Gurley, who is frequently right and never in doubt, wrote in April on Twitter: “An entire generation of entrepreneurs and tech investors built their entire perspectives on valuation during the second half of a 13-year amazing bull market run. The ‘unlearning’ process could be painful, surprising and unsettling to many. I anticipate denial.”

And he also noted: “Revenue & earnings quality matter.”

He’s wrong on that last point — at this moment, nothing matters, so it might be a good idea to sit very quietly and think hard about the growth-at-any-cost mantra that has illuminated tech for the past 13 years. No less than the chief executive of the size-obsessed Uber, which Gurley financed, was out this week preaching restraint. “We have to make sure our unit economics work before we go big,” said Dara Khosrowshahi in a note to his employees. “We will be even more hard-core about costs across the board.”

As it turns out, there is always a cost.”