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Reflections on a crash.
For the third time in my adult life, giant charts of plunging stock markets are back on the front pages of the New York Times and Wall Street Journal. The last time this happened was 2020, as COVID and pandemic-induced lockdowns halted the global economy; the time before that was the 2008 financial crisis, and the Great Recession that followed.
I was a senior in college at the beginning of the 2008 crash, and I wasn’t terribly concerned by it. At first, it was a disaster happening at a distance.
That space closed quickly. Within a few weeks, the jobs I was applying for started to disappear; then the one job offer I had got pulled. In the spring of 2009, I shotgunned out an array of new applications, and ended up with a position at a think tank in Washington, D.C.
When asked, in polite company, why I moved to DC, I would’ve said something about my interest in economics and policy, or made general gestures at the service my employer provided to the country and world. But this wasn't true. I didn't see DC or my job as a lever for impact; I saw them as a ladder to success. Underneath my socially acceptable answer about creating a better world was something much more vain and self-serving: I wanted a good résumé. In the absence of a professional passion, I was blindly chasing prestige. I'd lived my adolescent life collecting trophies—grades, a college degree, snotty extracurriculars. The job I was offered in 2009 was the best option I had to add something new to the case, the “next opportunity for extrinsic validation.”
I was by no means alone. From aimless twenty-somethings who went to law school or became McKinsey consultants because it "would give them the most options in the future," to nakedly ambitious politicians and political operatives, DC is full of people who are strivers first, and everything else second.
The social strata of DC were defined by this scaffold. People sorted themselves by where they stood on the hierarchy, and measured their success in the same way. How notable was the NGO that you worked for? Who did you know on the Hill? How many floors at the State Department was your office from Hillary’s? When ambition is your professional stimulus, it quickly becomes your social sieve and, worse still, the scale on which you weigh your personal worth.
San Francisco is built on similar ground. Over the last decade, people—again, myself included—moved to SF not for our love of technology, but to achieve. At what, we didn’t know and didn’t exactly care. But the city was overflowing with accomplishment and money, and we wanted a piece.
Like in DC, most people in the tech industry aren’t so gauche as to say this outright.We were there, we say, to “have an impact,” the cliche that’s replaced its now-parodied predecessor, “make the world a better place.” But as in DC, the silent scoreboard that hangs over SF’s entire professional order has nothing to do with impact or social good; it has to do with money and startup hype. How much venture capital did your employer raise, at what valuation, and how early did you join? Conference speaking slots, times on calendars, and even party invites are dolled out according to the answers to these questions.
In this context, fundraising rounds and startup valuations are more than financing mechanics; they’re yardsticks for our careers, and an unspoken sorting algorithm for social interactions.In the most cynical cases, companies get created not to build products, but to manufacture accomplishment. Ambition and success—measured almost exclusively by the size of your associated numbers on Crunchbase—became ends unto themselves.
The hottest fires
In recent weeks, those numbers have turned ugly. The S&P 500 is on the precipice of entering its third bear market of the last two decades, and tech stocks have led the way down. The Nasdaq has lost nearly a third of its value in the last six months. Venture capital markets are seizing up. Startups that investors would’ve valued in the billions six months ago are now thought to be worth a fraction of that.
The drop triggered the usual flurry of reactions from investors. Some VCs turned to scolds, lecturing startups about how the last two years were all fantasy.Some looked to exploit the crash for clout, and rushed out their apocalyptic “RIP Good Times” predictions. Some beat their chest about the need for belt tightening and pencil sharpening, and blustered on about how, “back in their day, they had to walk to Sand Hill Road, in the snow, up hill, both ways, just to get told that their profitable company wasn’t ‘a good fit,’” and how that was all the motivation they needed to keep building.
The more helpful VCs have tried their best to read the tea leaves,and provide guidance through the turmoil. Though most assessments are bleak, they close with the same tepid pep talks: Great companies are built in tough times; it’s good to focus on sustainability over growth; Silicon Valley was too frothy; this correction is a healthy reset.
For most of us in Silicon Valley, the situation is not, in any real sense, dire. We have well-paying jobs, and employable skill sets if we were to lose them. Still, speaking as a startup employee caught up in the maw of the storm, I initially resented these VC talking points. Even if they’re true, pithy, regurgitated lines about the hottest fires forging the hardest steel feel like framing a bad performance review as an “opportunity for improvement”—a thin euphemism for a steeper road leading to a smaller prize. For a preeminent VC, more disciplined valuations represent a couple years of lower returns and more rigorous diligence;for people in the arena, they’re the invisible hand of the market taking a hatchet to how you and your entire professional network value what you’ve spent years building.
On reflection, though, there is wisdom in these points. They’re just aimed at the wrong problem. For it’s not the technical dynamics of the venture market that need a reset—it’s us.
The fall will set you free
When Zoom filed for an IPO in 2019, Silicon Valley was in awe of its business. Eighteen months later, after Zoom became a word of the year, the company’s stock was up 400 percent. According to some Wall Street analysts, its ceiling was another 400 percent higher, equal to the combined value of Verizon and AT&T. Over the next year, the price nearly doubled.
Today, amid the receding pandemic and the market crash, Zoom is down 85 percent from its peak.
Little, I imagine, about Zoom has actually different. Its product hasn’t gotten 85 percent worse; its culture isn’t a fraction of what it once was; Eric Yuan, Zoom’s CEO, is probably the same caliber of CEO that he was in 2019. By most sensible measures, Zoom hasn’t changed that much over the last three years, despite financial markets not being able to decide if it’s worth $18 billion or $160 billion.
In other words, if Zoom’s stock price is its scoreboard, it’s a terrible one—driven by a mix of randomness, animal spirits, the murderous whims of an egomaniacal dictator, and worldwide Acts of God. Zoom judging itself by its stock price is no different than Zoom judging itself by the day’s weather.
And yet, in today’s tech industry, it's how we judge ourselves every day. The startup valuations and financing rounds that stratify Silicon Valley may not shift as often as a stock, but they’re just as fickle.
Rather than despair during bad storms such as these, we should use them as an opportunity to let go. No matter how much we want to stay dry, we can’t control the weather. There’s no sense in congratulating ourselves for sunny days, or in crying when it rains.
This isn’t a call for nihilism or to reduce our ambition; it’s a reminder to pay attention to what we’re ambitious about. Instead of chasing money and hype, we can chase the things we can both control and say we’re motivated by—creating things that make people happy, building a company that provides good jobs, working with people we like, and enjoying what we do every day.
Despite its builder ethos, the zeitgeist in Silicon Valley will demand we keep staring at its current scoreboard. The tech press report on new fundraisings; VCs will promote their latest unicorns; conferences will book their CEOs as speakers. But we can choose to see value in other things. We can celebrate our professional peers the way we do musicians—by what they create, not by their record deals—and doctors—by the good they do, not by what they’re worth. We can listen to people who aren’t rich, and, just as importantly, don’t have to listen to everyone who is. We can choose to look away from the stock market. We just have to have the courage to let go of what it represents.
This is one thing I appreciate about New York: Rich people say they’re here to be rich. A huge swath of the financial industry may be a collective leech on the American economy, but at least they’re direct about why they’re doing it.
Go to a party or conference in SF, and you can see this happen in real time. As people figure out who else is there, they slowly cluster themselves by their respective “ranks.”
To ask the uncomfortable question, how many of these companies were started to solve a problem, and how many were started because the founders wanted to be founders?
In slightly more technical terms, revenue multiples, the ratio of a company’s valuation to its annual revenue, are compressing. In 2021, quickly growing companies raised rounds at 100x multiples or more (which is, historically, astronomically high), meaning that company that made few million dollars a year might be valued at more than $1 billion. Today, that same company would likely be worth closer to 20x revenue, or less than $100 million.
One such lecture came from a fund that, a year ago, bragged to a prospective investment about how little diligence they would do on their proposed round, which valued the company at several hundred times its revenue.
And cheaper prices.