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Is it a tech bubble? Stock prices and start-up layoffs send Silicon Valley reeling

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Tech companies were the darlings of the pandemic economy.

Now, with skyrocketing inflation, rising interest rates, a war in Europe and uncertainty in China, the biggest tech behaviors are dragging down the stock market, while Silicon Valley start-ups are laying off employees — a dramatic downturn for an industry considered a barometer for the global economy.

The collapse has affected even the most dependable bulwarks. Apple, despite record revenue, went from being worth $3 trillion in January to $2.5 trillion Monday. Microsoft, Amazon, Tesla and Alphabet have all lost more than 20 percent of their value this year. Netflix has lost 70 percent.

Facebook, which is down 40 percent this year, told its employees recently it would freeze hiring, which in the tech industry will mean an all-but-certain drop in overall head count. Private start-ups, sheltered from the stock market, have also felt the pain, with 29 companies laying off employees since the beginning of April, according to, which tracks layoffs in the tech industry.

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That includes Robinhood, the financial services company; Cameo, the app that lets users pay for personalized videos from their favorite celebrities; and On Deck, a Silicon Valley darling that helps tech talent start companies, secure funding or find jobs.

This is a major turn for the tech industry, which for more than a decade has defied gravity, continuing to expand beyond what even the industry’s biggest fans thought was possible. Now, with an economy stretched by the global pandemic and jostled by war, the once largely immune tech industry may have found its match.

“There’s a lot of factors, a lot of headwinds that have people worried,” said Greg Martin, co-founder of Rainmaker Securities, which facilitates trading of privately held technology companies’ shares. “I’ve been doing this since the late ’90s. I’ve seen patterns like this. This feels very different.”

Andrea Beasley, spokeswoman for Meta-owned Facebook, said that it is slowing down its talent pipeline according to its business needs. The other companies did not immediately respond to a request for comment.

The Nasdaq was poised for recovery Tuesday, projected to recover 2 percent at the opening bell after a dizzying 4 percent decline to kick off the week. But the pain is continuing for individual stocks that had once been the cream of the pandemic crop.

After touching an all-time low Monday, fitness company Peloton’s shares slumped more than 21 percent in premarket trading after the company reported a $757 million loss last quarter and its first year-over-year decline in revenue since going public. Its stock is now down more than 60 percent year-to-date.

During the dot-com bust in 2000, highflying Silicon Valley companies buoyed by overhyped stocks disintegrated overnight. The impact was so immediate and dramatic that Bay Area traffic thinned out and parking was easier to find.

By 2004, the industry found its jogging again. Companies such as Facebook set up shop, and soon the industry was booming. Despite a global financial crisis and speculation of another bubble burst, the trajectories of companies such as Facebook and Google stayed on course. Then came Uber, Airbnb and Twitter, all of which faced skepticism about their lofty valuations before going public.

For more than a decade, some investors have wondered whether a crash reminiscent of 2000 was coming. But it hasn’t materialized, even as the coronavirus shuts the world down.

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So far, that’s in large part because today’s tech industry looks different from the one in 2000.

It’s more global, with major companies spread out across the United States, Europe and Asia. Investors now include not just storied venture capital firms such as Sequoia and Benchmark Capital, but major players in the financial markets, like Tiger Global, which earlier this year committed $1 billion for early-stage tech start-ups.

Companies such as Uber and WeWork were funded in part by money from the Kingdom of Saudi Arabia via the Japanese firm SoftBank. According to the National Venture Capital Association, 2021 alone attracted 17,000 venture capital deals, worth a record $330 billion.

And while investors may think the stock price for incredibly valuable companies including Apple, Amazon, Facebook and Google could be overpriced, they have built sprawling and largely profitable businesses.

Still, Amazon recently reported a surprising loss and said its warehouses were overstaffed. And shareholders’ demand to see profitability — and distrust in the business model for the once-bullish ride-sharing sector — was the theme of Uber CEO Dara Khosrowshahi’s recent email to employees.

“The average employee at Uber is barely over 30, which means you’ve spent your career in a long and unprecedented bull run. This next period will be different,” he wroteaccording to media reports.

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Still, the downturn affecting the technology industry today is showing no signs of turning catastrophic yet.

“I had a conversation today with an early-stage investor and none of us had any data yet showing there are fewer companies being started because of this,” said Beezer Clarkson, a partner at Sapphire Partners who invests in early-stage venture capital firms . “That would be a very worrisome sign if people were choosing not to innovate or start companies, so it’s something we are continuing to watch closely,” she said.

Venture capital investors, some of whom spoke with The Washington Post on the condition of anonymity because of the sensitivity of their investments, said the downturn isn’t affecting their investment strategies.

But they said start-ups needed to pay attention to their “burn rate,” Silicon Valley lingo for the amount of investment capital they are spending, because it may become more difficult to raise more funding rounds. Because most early-stage start-ups lose money, the amount they “burn” determines how long they can survive between funding rounds, known as “runway.”

Rather than pull back on investing in start-ups, Clarkson said, investors are telling us they’re looking at companies more critically, asking them to use their funding more efficiently. “You can make the argument that’s not necessarily terrible. Looking at metrics should not be a negative.”

A downturn in large tech companies can also benefit the next wave of start-ups. When companies such as Facebook and Netflix stop hiring or lay off employees, some of those employees often found or join start-ups, which may have looked risky compared to the security of a large company.

Employees at publicly traded tech companies often receive a significant or even majority of their salaries in the form of stock. As stock prices go down, the salaries offered by large tech firms look less and less attractive relative to smaller start-ups.

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Private tech companies aren’t traded on the public stock market, so their true value is often difficult to calculate. But some employees sell their stock on private markets reserved for sophisticated investors. The prices of those “secondary shares” can provide a sense of whether the value of a company is rising or falling.

Martin, who facilitates secondary market trades at Rainmaker Securities, said the shares of some private companies are being traded at a steep discount. But he said some start-ups have begun to clamp down, preventing shareholders from trading shares to avoid the perception that the company is less valuable.

A down market can create problems for start-up employees that go beyond layoffs. Employees at start-ups are often compensated with stock options that they are allowed to purchase at prices below what outside investors are willing to pay. Employees must wait to sell those shares until the company goes public or is acquired, or if they are permitted to sell on the secondary markets. But employees must pay taxes on the stock options before selling them. If the company fails, the employee will have paid taxes for nothing.

Some Silicon Valley entrepreneurs and investors are skeptical that anything serious is amiss.

“Hiring got really out of control and work didn’t really change in a meaningful way during covid, so I wonder how much of this is big companies using the macro softness to clean house,” said Sarah Kunst, founder of venture firm Cleo Capital .

On ZipRecruiter, a job listing site, the number of active job postings in the tech industry has increased between January and April for all available jobs, including project management and software development, said the company’s lead economist, Sinem Buber.

“Since technical skills are highly desirable across all industries from online retail to fintech, skilled workers have a lot of options in the job market right now,” Buber said.

Still, fears about layoffs are ricocheting across Blind, the anonymous messaging app popular with tech employees, where thousands of users voted in a poll asking which tech company would cut jobs next.

Facebook parent company Meta has frozen hiring for mid-level and junior engineers, a current employee who spoke on condition of anonymity to discuss sensitive matters told The Post. And internal communication shared with the paper said that because fewer recruiters would be needed, some upcoming recruiter contractor engagements were being canceled.

“Impacted contractors were notified immediately and offered a financial transition package” from their formal employers, according to a post viewed by The Post. It warned readers not to speak to the media or discuss the layoffs online.

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The post emphasized that employees were not impacted. It also noted that Meta would be hiring fewer people than originally planned for 2022.

Board member Marc Andreessen wrote that workforces needed to be slashed after years of unbridled spending.

“The good big companies are overstaffed by 2x. The bad big companies are overstaffed by 4x or more,” I have posted on Twitter.

Elon Musk, who has said he plans to buy Twitter for roughly $44 billion, has suggested hiring 3,600 employees, after shedding hundreds of jobs, according to a pitch deck viewed by the New York Times.

Musk, who is CEO of electric car company Tesla and rocket company SpaceX, is facing concerns from employees and investors that he might be stretched too thin. He has put up much of his personal wealth from him to fund the acquisition — expected to be a large portion of his Tesla stake from him.

Tesla’s stock is down 20 percent since Musk made his offer to acquire Twitter.

Taylor Telford contributed to this report.

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