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.