The technological crash is here. Rejoice!
Which affects both good and bad. Fundamentally sound companies, those with real revenue and prospects, like Microsoft, are also seeing their value plummet, and Musk’s own companies are no exception to the depreciation. Tesla’s price crash has jeopardized its ambition to acquire Twitter, and last weekend it was forced to scrap plans to cut 10% of the electric carmaker’s staff. Furthermore, the future earnings of a cheeky big bet such as its Starlink business – obscuring the world in satellite internet connectivity – also look much worse on a DCF analysis, now that interest rates have risen.
During these two decades, the word “tech” itself has become devalued: it hasn’t referred to technology or a technology company for some time. As recently as the 1990s, it was easy to identify what a tech startup was. This would be a new company seen as well positioned to take advantage of an innovation with great future market potential. For example, when Nvidia went public, it was one of three companies to go public in a 30-plus funding round, with investors betting that the winner could bring CGI to the masses, in PCs and game consoles.
This required technical knowledge and marketing skills. A bet like Nvidia was risky, as it should be, as incumbents usually won. But now ‘technology’ has become so degraded that another phrase has been coined – ‘deep tech’ – to refer to anything really related to engineering or computing. In WeCrashed’s most exquisite sequence, Apple TV’s frantic dramatization of WeWork’s history, founder Adam Neumann outrageously rebrands his office sublease business as a “tech company” only to woo Softbank’s Masayoshi Son. , which is looking for a “disruptive” platform. That works.
Another of Son’s big bets, Klarna, now looks like the biggest potential victim of the crash. For critics, it’s little more than a payday loan operation, one tapping into a market of borrowers that the credit market has rejected, for the very good reason that they’re doing more bad debtors: the impulsive Gen Z. Klarna rushes to an IPO as its valuation plummets.
Klarna, which announced layoffs last month, was valued at $45.6 billion a year ago, but recent reports indicate that new financing plans would reduce the valuation to around $30 billion. All in all, other fast fashion “tech” ersatz companies are collapsing. I expect food delivery businesses to explode next, with consequences for commercial TV advertising revenue and the electric scooter market.
One of Silicon Valley’s oldest venture capital firms, Sequoia Capital, has now released a grim 52-page prospectus for its startups with a name reminiscent of those Cold War nuclear fallout advice pamphlets, like Protect and Survive. In Adapting to Endure, the firm warns: “We don’t think this is going to be another steep correction followed by an equally rapid V-shaped recovery as we saw at the start of the pandemic.”
That might sound a bit rich from the company that once backed Google’s spooky spy wearables, Glass, and recently auctioned an NFT. But we’re all better off when the fool money stops flowing, and to be honest, better off without the fools paying fools money, like Sequoia.
Andrew Orlowski is on Twitter @andreworlowski