Silicon Valley is Doing Just Fine, Thanks

Tech companies are doomed. Just look at this chart from JP Morgan Asset Management!

Source: Matt Levine
Source: Matt Levine

The chart is supposed to show that unicorns do poorly in the public markets, and I assume that whoever made it was high. Not just because there’s a unicorn vomiting a rainbow, but who the hell plots stock price as a function of days-since-IPO?

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Here are the unicorns again, plotted on a common timeline. You know who also has trouble surviving in the wilderness? The S&P 500.

The problem does not lie with Silicon Valley investors so much as the journalists reporting on the tech industry. Over the weekend, we had this WSJ story declaring Silicon Valley’s Hangover:

Today, venture capital is drying up for less successful startups. Investors, eyeing collapsing tech stocks and economic sloth, are culling their portfolios and forcing cash-starved companies to retrench or shut down.

Guess what: 75% of venture-backed companies fail. That’s a number from 2012, and I bet it’s even higher today. Venture Capitalists have always culled the herd. What did you expect them to do, double down on the losers?

When there are tens of thousands of venture-backed companies, three-quarters of whom are doomed to die, it is very easy to find stories of failing startups, no matter what the conditions are.

Last year, we mostly ignored those stories, because the popular narrative was that any college dropout with a pitch deck could get a billion-dollar term sheet on Sand Hill Road.

Then the Fed raised interest rates, and China/oil/whatever happened, and somehow those events unleashed a plague upon the fledgling tech industry.

The media fashions its headlines from the public markets, because that’s the only reference they have to draw from. If markets were rallying, we’d be hearing about how Uber raised yet another $200 million, Campbell Soup launched a $125 million fund, and even JetBlue announced a venture capital fund in Silicon Valley. All in the past week!

Instead, we hear about layoffs and down-rounds, stories that have always happened and will always continue to happen.

Venture capitalists have an investment horizon of over 10 years. If investors are collectively soiling themselves over two months of market turmoil, they should seriously consider a different line of work (my company is hiring!).

Reports of unicorn deaths have been greatly exaggerated. When rental prices regain sanity, and 101 traffic starts to move faster than snail shit, then we can start worrying about Silicon Valley. Until then, everyone is doing just fine.

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