Start-Ups in Silicon Valley Narrow Their Focus, Now Talking About Fiscal Responsibility

Katie Benner reported on the front page of yesterday’s New York Times that, “Silicon Valley start-ups were set to face a great reckoning in 2016. Yet the crash hasn’t happened.

“Last year, many tech executives, venture capitalists and entrepreneurs were convinced that a multiyear boom that had propelled young companies to great heights could no longer sustain itself. Some said it would end apocalyptically. Michael Moritz, an influential start-up investor at Sequoia Capital, declared many of the companies ‘the flimsiest of edifices.’ Bill Gurley, a venture capitalist at the Silicon Valley firm Benchmark, proclaimed that the start-ups would bite the dust. ‘Winter is coming,’ others intoned.

The worst fallout may yet come, but many of the start-ups have hung on. Across Silicon Valley, engineers are still commanding annual salaries that average $136,000, according to Hired, a recruiting firm. Demand is brisk for $4 buttered toast, and office space rents remain near record highs. The biggest start-ups, like Uber and Airbnb, continue to land billions of dollars in funding. And investors are shoveling money into venture capital funds, which raised so much cash in the first half of this year that it rivaled the amount raised in all of 2015.”

Yesterday’s article indicated that, “For all of the hand-wringing, ‘there just hasn’t been much of a downturn,’ said Paul Buchheit, a managing partner at Y Combinator, a prominent start-up incubator that nurtured companies including Dropbox and Airbnb. ‘I don’t even see many companies going out of business.'”

Ms. Benner also pointed out that, “Silicon Valley’s innovation engine continues even with the survival of so many start-ups — and not just the fittest — because of the abundance of venture capital. There has been a proliferation of new enterprises in up-and-coming fields like artificial intelligence, robotics and virtual reality, creating potential areas of growth for Silicon Valley technologists to build on next.

“For techies who have been grappling with the not-yet-a-crash environment, the adjustment in their outlook is evident in their speech. Entrepreneurs who once talked about how fast their start-ups were growing are now spouting from a bible of fiscal responsibility.”

The New York Times article added that, “A Silicon Valley start-up crash may still take place, especially if the stock market tanks or if there is a financial shock to the system. And some tech investors like [ Mr. Gurley, the venture capitalist, are still sounding the alarm. In April, Mr. Gurley wrote a blog post that laid out how venture investors remain overcapitalized to a dangerous degree, which made investing in start-ups more risky.

“While there has been no crash since then, he does not regret any prognostications. He said he was glad if young companies had stopped overspending because of his warnings.”

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