Silicon Valley in a Funk After Facebook IPO Flop

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Following Facebook's IPO disappointment and subsequent stock market fizzle, the rest of Silicon Valley has started to feel the after-shocks, furthering our suspicions that this is a very selfish social media bubble. While Facebook's early investors and billionaire founder Mark Zuckerberg have made bank, even as Facebook's stock continues its constant fall, as we predicted the rest of Silicon Valley hasn't fared so well. The other day, we discussed Kayak's stalled IPO as just the first victim of Facebook's unsuccessful public debut. Now venture capitalist, Paul Graham, who TechCrunch's Alexia Tsotsis calls the smartest in the business, has the venture capital crowd all worried, warning that start-ups will have a hard time raising money following Facebook's IPO flop.

The warning comes via a letter Graham wrote to his portfolio of companies that was reposted on Hacker News. "Jessica and I had dinner recently with a prominent investor. He seemed sure the bad performance of the Facebook IPO will hurt the funding market for earlier stage startups," the letter begins. He then continues with a very reasoned account of the possible scenarios for the rest of Silicon Valley, which ranges from not a problem, to bad. The industry probably won't implode, he explains. But the overall message is: Don't expect the money to be there. And, it's all Facebook's fault.

Many have compared the message to a similar warning that came out of Sequoia Capital in 2008, which earned the nickname RIP Good Times. Some think that Sequoia's warning was overdone, in the words of Google marketer Caroline McCarty, a "zombie apocalypse that wasn't." Still, lots of people paid attention -- and made changes to their businesses as a result -- so it's worth paying attention to Graham, too. Especially since he's not the only VC warning of a coming slow-down. Venture capitalist Fred Wilson in what is supposed to be a rebuttal to Graham even admits the outlook isn't great. He begins his musings as such:

I don't disagree with PG when he says that Facebook's IPO performance (or lack thereof) has the potential to impact valuations in startup land. I think it will be particularly impactful on the late stage and secondary markets where most of the IPO valuation speculation is happening.

His counter-argument, however, is that Facebook still looks great, which is where the selfish part of all of this comes in. "But let's put Facebook's current valuation in perspective," he writes. "The market has put a premium valuation on a great company and we should be happy about all of that. I certainly am," he explains. To reiterate: Facebook okay, everyone else probably not okay.

The benefits of this social media bubble have been and continue to be very limited. It's not just the future start-ups that will lose out as a result of Facebook's failings. While some people are indeed getting rich, that wealth is very localized, as we've discussed before. It's really only the Bay Area benefitting economically. But, even within that geographic locale, the benefits don't reach much further than the tech scene. Middle and lower class San Franciscans, for example, are getting priced out of San Francisco's ever-increasing housing market, reports The New York Times's Norimitsu Onishi. The following quote is quite telling of the situation. "Of course, Twitter is good for the city, but how about me?" Jenny Liu, the owner of Ironwok Japanese and Chinese restaurant told Onishi, explaining that her landlord upped her rent a whopping $4,000 to $12,000 from $8,000. Rent is at a record high. And the mayor has acknowledged the movement of lower-income residents moving out of the city, Onishi reports.

Neighborhood fears extend beyond exile. As things start to crumble, these residents fear they will hurt most. Oshini explains:

The Mission ... was among the hardest hit during the dot-com era when some start-ups set up shop in the city and then folded, though not before raising rents and dislocating longtime residents. Back then, antigentrification posters appeared in the Mission urging people to vandalize luxury cars parked in the area.

The start-up scene hasn't completely imploded, '90s style. But, considering Graham just told us to expect less cash flow throughout Silicon Valley, we imagine this will have an impact on the spending happening in the rest of the Bay Area, right? And, it probably takes some pretty high-roller clients to support those thirty percent plus rent increases.

This article is from the archive of our partner The Wire.

The GOP’s options are dwindling after the failure of an amendment that would scrap Obamacare without replacing it. Party leaders are now looking for any plan that can pass.

Updated on July 26 at 4:32 p.m.

One by one, the Senate’s options for overhauling the nation’s health-care system are dwindling—but they still have a few left.

Republicans on Wednesday rejected a straight repeal of much of the Affordable Care Act, leaving them far short of a consensus one day into debate on health-care legislation passed by the House in May. The amendment was virtually identical to legislation Republicans passed on a party-line vote in 2015 and would have scrapped the law on a two-year delay. Then-President Barack Obama vetoed the measure. Conservatives led by Senator Rand Paul of Kentucky have tried to revive the “clean repeal” option in recent days to break the impasse within the GOP, but moderates are—for now—objecting to proposals that only repeal but do not replace the current law. The vote was 55-45 against. Seven Republicans voted against the proposal, including Senator Lamar Alexander, the chairman of the Health, Education, Labor and Pensions Committee. GOP opposition also came from Senators Susan Collins of Maine, Shelley Moore Capito of West Virginia, Lisa Murkowski of Alaska, Dean Heller of Nevada, Rob Portman of Ohio, and John McCain of Arizona.