Silicon Valley braces for tech pullback
Veteran venture capitalists and CEOs expect an economic downturn.
After a decade of euphoria, Silicon Valley start-ups, venture capitalists, and major tech corporations alike are slashing investment and eliminating employees, prompting some in the IT industry to publicly forecast a US recession.
Facebook and Amazon have reduced their frenetic hiring, while high-flying younger startups such as scooter company Bird and email app Superhuman have laid off employees.
Elon Musk, CEO of Tesla, recently informed staff that he had a "very awful feeling" about the economy, and Lightspeed Venture Partners cautioned in a blog post that "the boom times of the last decade are unambiguously over."
Stitch Fix, a fashion tech business, announced on Thursday that it was eliminating around 15% of paid employment, or 330 jobs, sending its stock price plummeting. Chief executive Elizabeth Spaulding stated in a staff memo that the workers losing their positions were informed that morning.
The tech-heavy Nasdaq index plummeted 3.5 percent on Friday, exacerbating the broader industry downturn. It is now down 28% for the year.
Many in the industry are experiencing whiplash as a result of the abrupt change. Uncertainty has descended over Silicon Valley as venture investors, tech founders, and average employees debate whether the pessimism is exaggerated or if tech is truly the canary in the coal mine, foreshadowing a broader economic slump in the United States.
According to Till von Wachter, a UCLA professor of economics, tech start-ups act as a "leading indicator" for the economy. Higher interest rates can make it more difficult to borrow capital to start new businesses, which normally take a long time to break even.
The raging bull market of the last decade enriched not just owners and investors, but also hundreds of thousands of employees who were paid in shares on top of their regular salary.
In recent years, technology has experienced some turbulence. Millions of Americans lost their jobs during the start of the coronavirus pandemic, and tech stocks, like the rest of the market, plummeted precipitously. However, it quickly recovered, and many grew even stronger during the pandemic as government spending bolstered the economy and people spent more money on e-commerce and digital services.
A new wave of economic instability has poured over the world as the war in Ukraine continues, China's economy struggles because of new financial restrictions, and the United States Federal Reserve hikes interest rates in an attempt to manage inflation. Share prices in Silicon Valley began to fall sharply in January as a result of the uncertainty.