Silicon Valley’s Mantra of Spend Big, Grow Fast? It’s Changing


SAN FRANCISCO — Fred Wilson, a venture capitalist at Union Square Ventures, recently published a blog post titled “The Great Public Market Reckoning.” In it, he argued that the narrative that had driven start-up hype and valuations for the last decade was now falling apart.

His post quickly ricocheted across Silicon Valley. Other venture capitalists, including Bill Gurley of Benchmark and Brad Feld of Foundry Group, soon weighed in with their own warnings about fiscal responsibility.

At some start-ups, entrepreneurs began behaving more cautiously. Travis VanderZanden, chief executive of the scooter start-up Bird, declared at a tech conference in San Francisco last week that his company was now focused on profit and not growth. “The challenge is to try to stay disciplined,” he said.

The moves all point to a new gospel that is starting to spread in start-up land. For the last decade, young tech companies were fueled by a wave of venture capital-funded excess, which encouraged fast growth above all else. But now some investors and start-ups are beginning to rethink that mantra and instead invoke turning a profit and generating “positive unit economics” as their new priorities.

The event was intended as a way to shock the start-ups into reining in costs to survive the downturn. Sequoia’s presentation quickly became the talk of Silicon Valley, which did not fall into as deep an economic funk as other parts of the United States.

Yet other alarms about the state of the start-up economy fell on deaf ears.

In 2015, as unicorn start-ups sucked in billions of dollars in funding and soared to stratospheric valuations, Mr. Gurley of Benchmark bemoaned “the complete absence of fear” in Silicon Valley and said “dead unicorns” would soon appear. In 2016, Jim Breyer, a venture capitalist who was an early Facebook investor, also predicted “blood in the water” for the unicorns.

But the money continued to flood into tech start-ups from overseas investors, private equity firms, corporations, and SoftBank’s behemoth Vision Fund. That allowed founders to command higher valuations and delay going public. By the end of 2018, start-ups in the United States had raised a record $131 billion in venture funding, surpassing the amount collected during the late 1990s dot-com boom, according to Pitchbook and the National Venture Capital Association.

Mr. Gurley gave up on his warnings of excess. “You have to adjust to reality and play the game on the field,” he said in an interview last year.

(Complaining about high valuations is a longstanding pastime among venture capitalists, of course, since most prefer to invest their money in cheaply priced start-ups rather than expensive ones.)

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