After a decade of exuberance, Silicon Valley start-ups, venture capitalists and established tech companies alike areOn Thursday, fashion tech company Stitch Fix said it was cutting about 15 percent of salaried positions, or a total of 330 roles, sending its stock price sinking. The people losing their jobs were told that morning, chief executive Elizabeth Spaulding wrote in a memo to employees.
“In light of our recent business momentum and an uncertain macroeconomic environment, we’ve taken a renewed look at our business and what is required to build our future,” Spaulding wrote.
The broader industry slump worsened on Friday, when the tech-heavy Nasdaq index fell 3.5 percent. It is now down 28 percent for the year.
The sudden shift is giving many in the sector whiplash. Uncertainty has settled over Silicon Valley as venture capitalists, tech founders and regular employees debate whether the pessimism is overblown or if tech really is the canary in the coal mine, already suggesting a broader downturn in the U.S. economy.
Tech start-ups do serve as a “leading indicator” for the economy, said Till von Wachter, a professor of economics at UCLA. Higher interest rates can mean it’s more difficult to raise money to fund new ventures — which typically take a while to turn a profit.
“They are one of the sectors that are the most sensitive to interest rate changes,” von Wachter said. “They are very dependent on what we believe the future to be.”
Tech has benefited immensely from the roaring bull market of the past decade, with soaring valuations enriching not just owners and investors but hundreds of thousands of employees who were paid in stock on top of their regular salaries. The pension plans and 401(k)s of millions of Americans have benefited from companies like Apple, Amazon, Google and Microsoft breaking through the trillion-dollar mark and becoming as valuable as the annual output of entire economies such as Italy or Brazil.
Year after year of rising valuations has created a pervasive feeling that there is nowhere to go but up. An entire generation of tech workers and founders have never worked in an industry without long lists of open jobs, new projects getting approved easily and employers throwing a stream of perks such as free meals and unlimited vacation at them.
Money has poured into smaller tech companies, too, as investors, including traditional venture capitalists all the way up to government-run sovereign wealth funds, have looked for ways to get in on the tech boom that never seemed to end.
Tech has faced shaky moments in the recent past. At the beginning of the coronavirus pandemic, millions of Americans lost their jobs, and tech stocks, along with the rest of the market, fell quickly. But it bounced back almost immediately, and many grew even stronger during the pandemic as government spending boosted the economy and people spent more of their money on e-commerce and digital services.
To some prominent tech luminaries, this moment feels different.
“We do not believe that this is going to be another steep correction followed by an equally swift V-shaped recovery like we saw at the outset of the pandemic,” the leaders of blue-chip Silicon Valley venture capital firm Sequoia Capital wrote in a May presentation to its portfolio companies that was published by tech news organization the Information. “We expect the market downturn to impact consumer behavior, labor markets, supply chains and more.”
Source: Washington Post
