Disclaimer:
These are not the opinions of my employer, AWS, and the only purpose of this newsletter is to share, learn through sharing, and foster some honest discourse in the community at large.
I went through this in the .com crash :: https://michaelsmithjr.substack.com/p/episode-5 and mostly was hiding under a rock during the GFC. We won’t know if we have arrived in 2GFC yet but one suspects we might be. The economies around the world have been riding pretty high on cheap credit, record stock markets and the tech economy booming around the world - or was it?
Yes big tech has been booming with record hauls of cash but we should separate sustainable tech companies from the Startup ecosystem but I find many folks like to pretend it is all the same thing. What I am about to say is gonna come from what I believe is my corner of truth. You have every right to disagree with me but my vantage is having worked in big/small tech, Startups, VC and involving myself as much as time allows in the ecosystem at large.
What I have seen over the last few years is nothing short of a bubble. We are surrounded by examples of it but we chose not to look or we chose to ignore the signs. I can thumb through notes of some of the meetings I have been in that were my own personal signs of it.
4M pre on 800k raise cause they have a deck, a slide full of advisors and a customer. Really? More VC funds than you can shake a stick at with people running them who have never run a company, never had an exit and who have never seen a downturn. They have every right to have that fund, just as I had every right to become a VC, but the people taking money from them, listening to them and thinking that the confidence the overvalued round gave them is the ticket to success are probably wondering what is going on right now.
What’s going on? Just lean your head out the window and listen for the giant hissing sound. It’s slow and steady but it is there - it is the sound of the bubble being gently pricked but the hole is big enough that it won’t be able to be easily patched.
Softbank won’t be able to fix it - they are too busy patching their own giant high leveraged company bubble.
The bubble was always there - it has been there for a few years but the stock market, easy credit and the promise of millions of USERS kept it afloat. Am I saying that tech isn’t the way forward? Not at all but it was time to have some house cleaning. Some common sense needed to sneak it’s way back into the decks and business models.
Yes - you should have a path to making actual money.
Yes - you should know what and how to make positive unit economics.
No - you shouldn’t be paying yourself market rates cause you went to Insead and the opportunity cost of not taking that banking jobs has to be factored into your pay. (If I gave myself 10 bucks for every time I heard this I would have enough money now for a super fancy dinner for 10)
No - your company isn’t an acquisition target. Not yet anyway.
No - the most overvalued term sheet offer you have doesn’t mean the company is actually worth that much. (Queue the down rounds.)
Is this fun for people losing their gigs - absolutely not. Yes - real companies will shutter over COVID - it is inevitable. They can’t be saved.
VC’s will have some tuning to do and they will have to place bets on who they are gonna save and who they are gonna fund since the Startup economy be reshaped to meet the new world order.
Personally I am optimistic but of course my vantage point is I have seen this happen before and I know that it is natural. For all of you successful startups out there that have good cash flow or have raised money - stop your complaining about talent.
Here is the main list for SEA - https://docs.google.com/spreadsheets/d/1U13Ef3EnJnMzuElElAJPbWiNBKutQuB7ldQED4C8L_Y/htmlview?usp=sharing&fbclid=IwAR3vs9dYvgiouVOwbBmQwJWG1xvStksg5hDpxhKKPrwwTJbskuBFqRku328
578 people on it. Now is the time to mop up talent.
Now is the time to buy distressed assets - something that SEA hasn’t done much of but at the same time we have never seen an event like this. My guess is there will be good companies able to pick up less healthy companies as a way of getting stronger.
Just want to be clear I am not making light of the situation.
It is bad.
But let’s not pretend it wasn’t coming.
COVID pricked the bubble but it was bound to happen anyway.
Good things will come from this but it will take time.
Feel free to comment as I leave comments open and will reply.
Curious if others feel the same or think I am way off here.
Open for discussion, as always.
Stay Safe.
I think some companies are well funded or doing well enough to see the future and know its a good time to buy. Also corporate SEA hopefully sees that this is a good time to buy startups. It may not happen but I think it is a buying opportunity
" Now is the time to buy distressed assets - something that SEA hasn’t done much of but at the same time we have never seen an event like this " I couldn't agree more with this statement and it'll be interesting to see the survivors on the other side. With so many factors in the air right now, you'd be pretty brave to be laying those bets at the moment.