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.

Like the House version, Mitch McConnell’s proposal would slash taxes, cut Medicaid, and eliminate Obamacare’s insurance mandates for individuals and employers.

Updated on June 22 at 12:10 p.m. ET

The Senate Republican health-care bill is finally out in the open.

After weeks of secretive deliberations, party leaders on Thursday released a 142-page proposal that would slash taxes on the wealthy and businesses; reduce federal funding for Medicaid and phase out its expansion under the Affordable Care Act; and limit the tax credits available to help people purchase insurance on the individual market. The legislation, titled the Better Care Reconciliation Act of 2017, is officially labeled a “discussion draft,” but Senate Majority Leader Mitch McConnell wants Republican to debate and vote on the bill by the end of next week.

Like the American Health Care Act that passed the House in May, the Senate bill is a substantial revision to Obamacare but not a wholesale repeal. And while Senate Republicans had vowed to start over rather than work off the unpopular House proposal, their version is structured the same way. The Senate measure mirrors the House bill in eliminating the ACA’s employer and individual insurance mandates and most of the tax increases it imposed to pay for new programs. Both proposals call for an overhaul of Medicaid funding that would allow states to institute work requirements and end the program’s status as an open-ended entitlement. The Senate bill would go further than the House’s $800 billion in cuts by reducing its growth rate beginning in 2025, but unlike the House version, it would begin a three-year phase-out of the program’s expansion in 2020. The AHCA would cut off the expansion entirely that year.