Silicon Valley's denial is over: Everybody thinks we're in a bubble


bubble bursting

Duncan Rawlinson/Flickr

This week was unusually busy on the tech media circuit in Silicon Valley, as several publications - Fortune, Re/Code, and Vanity Fair - hosted events featuring big-name tech execs and investors.


We talked to a lot of these execs, as well as the quieter folks behind the scenes, at the events and the parties afterwards, and a common theme shone through: Everybody agrees we're in a tech bubble.

At the Code/Mobile conference in Half Moon Bay, there was a lot of chatter about "on-demand" companies such as Uber, Postmates, and Instacart. These companies sprung up over the last few years to provide conveniences at the touch of a smartphone button to busy professionals with disposable income.

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But investors are worried that these companies have been subsidized by easy VC money for too long. In many cases, their customer and usage numbers are going up because they're using VC money to expand into new cities, but customer acquisition costs remain high and many of them are bleeding money. Worse, mature markets like San Francisco and New York are starting to see some scary, weak customer adoption numbers, which bodes poorly for these companies as they expand into other regions.

Vapor time

Basically the theory is that you can only sell a dollar for 75 cents for so long until you run out of money. That's going to happen at some point, and some investors believe a lot of these companies will vaporize.


At the Vanity Fair party, an attendee referenced Bill Gurley sounding the alarm about the tech bubble on stage, saying that today's tech scene in San Francisco has an awful lot of startups with business models based on essentially replacing young tech workers' mothers. That can't last.

At the beginning of Gurley's panel, moderator Nick Bilton asked attendees by a show of hands how many thought we were in a bubble. Most people flung their arms up.

Bill Gurley

Mike Windle

Gurley shared the stage with Julie Wainright, CEO of dot-com bust, and Stewart Butterfield CEO of unicorn startup Slack

There was also chatter that late stage rounds are getting much harder to raise without some serious revenue growth and a path to profitability - something that Fortune's Dan Primack also heard while he was in town this week, and that Business Insider heard from Tanium cofounder Orion Hindawi back when that red-hot (and already profitable) security company raised its latest $120 million funding round in September.

As for the biggest unicorn - Uber - some people are coming to the conclusion that it's overvalued at $51 billion, but will continue to raise even more money at even higher valuations and so may end up being a great investment. That's actually not as paradoxical as it might sound - recall how everybody thought Facebook was overvalued in its late-stage rounds, and it's now worth more than $200 billion on its fast growth in mobile advertising, a business it didn't even have when it was private.

Other common topics of discussion:

  • Jack's return. For whatever reason, we ran into an unusually large number of people connected with Twitter - present or former employees, and investors. They were universally happy that the distracting CEO search was over and thought that Jack Dorsey could handle the job while still running Square. One longtime employee compared him to Steve Jobs with a completely straight face.
  • The inevitability of self-driving vehicles. They're definitely coming, even if not everybody can agree on what they'll look like or who will use them first.
  • Us. It's not every day that the company you work for gets a new owner, so there were a lot of congratulations and questions about our soon-to-be owners Axel Springer.

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