It’s no longer unthinkable to compare the coming financial pain in Silicon Valley with what happened in the dotcom bust. These are two of the Valley’s more successful venture capitalists:
Prior to the financial crisis I would have not anticipated this downturn to be as pronounced as 2001 because we didn’t fly as high. Now it’s hard to say. (Bill Gurley, Benchmark Capital)
My guess is if we have a prolonged recession – 2 years or more – that the results will be like the last time: the vast majority won’t make it, but the few that do will do very well. Such is the history of the Valley in down cycles. (David Sze, Greylock Partners.)
Smart entrepreneurs had already been tightening their belts for much of the year, but talking to Valley financiers in recent days, I’ve been struck how quickly the mood has darkened.
To keep things in perspective: the fall this time can’t possibly be as bad as 2001, if only because there has been far less invested. But whenever the Valley’s habitual optimism evaporates, it leaves a sickening sense of unease. This is Bill Gurley’s description of how VCs behave at times like this:
People get nervous. They choke up on the bat. I would suspect that all things being equal prices of new rounds go down. Especially the later letters: Series B, C, D. VCs start to see the world half-empty instead of half-full, and on the margin that is a bigger deal than people may realize.
