tech bubble valley told one silicon like
Is Silicon Valley in Another Tech Bubble?One Thursday morning in early June, the ballroom of the Rosewood Sand Hillhotel, in Menlo Park, was closed for a private presentation. The grand banquethall appeared worthy of the sprawling resort’s five-star designation: ornatechandeliers hung from the ceiling; silk panels with a silver stenciled designcovered the walls. Behind a stage in the 2,800-square-foot room, a large signbore the name of Andreessen Horowitz, one of Silicon Valley’s most reveredventure-capital firms.As breakfast and coffee were offered, the company’s partners mingled with themen and women who endow their $1.5 billion fund. The investors were dressedinvariably in business casual, with the top button of their dress shirtsnoticeably undone. (A mere handful of men stood out in a suit and tie.) Off inthe distance, you could make out the faint purr of Bentleys and Teslasferrying along Sand Hill Road, depositing the Valley’s other top V.C.’s attheir respective offices—Greylock Partners, Draper Fisher Jurvetson, andSequoia Capital, to name just a few—for another day of meetings with founders,reviewing the decks of new start-ups, and searching for the next can’t-misscompany.After some chitchat (Mitt Romney had addressed the group the previous night),Scott Kupor, a managing partner, took the stage to tell the assembledinvestors what was going on with their money. A16z, as the firm is commonlyknown in the Valley, had invested hundreds of millions of dollars in some ofthe industry’s biggest companies—Instagram, Facebook, Box, Twitter, and OculusVR—along with a number of upstarts, such as Instacart, a grocery-deliverybusiness that had been recently valued at about $2 billion. After the guestsfound their seats, Kupor began moving through a series of slides depicting thepast and present of the tech sector, using data that would help inform thefirm’s investments in the future. Each set of numbers had been meticulouslyresearched and culled from sources that included Capital IQ, Bloomberg, andthe National Venture Capital Association.Yet the presentation, which adhered to a16z’s gray-and-deep-orange palette,seemed to have an ulterior motive. Kupor, his hair neatly parted, was eager toassuage any worry about the existence of a tech bubble. While he conceded thatthere were some eerie similarities with the infamous dot-com bubble of1999—such as the preponderance of so-called unicorns, or tech start-ups valuedat $1 billion and upward—Kupor confidently buoyed his audience with slidesthat read, “It’s different this time,” and charts highlighting the decrease intech I.P.O.’s, the metric that eventually pierced the froth in March of 2000.Back then, a company went public almost every single day; now it was down toabout once per week. This time around, he noted, the money was flowingbackward. Rather than entering a company’s coffers in the public markets, itwas making its way to start-ups in late-stage investments. There was little,he suggested, to worry about.And then, toward the end of his reassuring soliloquy, the ANDREESSEN HOROWITZsign fell from the wall and landed on the floor with an ominous thud. As theinvestors looked on, some partners in the Rosewood ballroom laughed awkwardly.Others did not seem so amused.## Kim Jong Un vs. HitlerWhile the rest of the country has spent the past year debating gay marriage,policing tactics, Obamacare, and Deflate-gate, the inescapable topic ofdiscussion in Silicon Valley is whether we are in a technology bubble. MarcAndreessen, the co-founder of his eponymous venture firm, is perhaps theleading advocate against the bubble chatter. On his Twitter feed, he hasreferenced the word “bubble” more than 300 times, repeatedly mocking orrefuting anyone on his radar who even hints at such a possibility. One of hisarguments, as the slides in the Rosewood ballroom suggested, is theexponential growth of mobile phones, which have fundamentally changed the waywe buy and sell virtually everything, from groceries to taxi-like services,and created unprecedented disruption. Also, in contrast to the days of thedot-com boom, many tech companies are creating revenue—in some instances, lotsof it.Andreessen’s points are all valid, but the bubble chatter is still impossibleto quell, in part, because the signs are increasingly ubiquitous. When I movedto the Bay Area to cover the tech industry for The New York Times, in thesummer of 2011, the Valley was still reeling from the bursting of the lastbubble, which led to more than $6 trillion in losses, and sent the NASDAQ on adownward spiral similar to the Dow’s amid the Wall Street crash of 1929. In2000, some start-up C.E.O.’s lost millions of dollars in a matter of hours.Others saw their entire net worth fall to zero in months. People vanished;commuting times were sawed in half; private investment ossified. At the time Iarrived, LinkedIn was the only publicly traded social-media company. A little-known upstart with a catchy name, Uber, had just raised a seemingly staggeringamount ($11 million) in venture capital. Postmates, Tinder, Instacart, Lyft,and Slack didn’t exist. Silicon Valley was an actual place, not an HBO show.But within months I noticed that private money was returning and a cavalcadeof start-ups were reshaping the city in their image. Engineers from companiesI hadn’t yet heard of began showing up at open houses with checks written outto cover rent for the first few months (a recruiting perk, I later learned). Iattended a jungle-themed Halloween extravaganza featuring acrobats, a600-pound tiger, and other wild animals in order to bolster photo moments thatpeople were posting on a hot new start-up, Instagram. Meanwhile, I was pitchedcountless apps to find a parking space, or messaging services to tell someonethat you are running late. The founders told me their companies were worthtens of millions of dollars. When I asked for their logic, they looked at meas though I were the crazy one. Shortly after the Facebook I.P.O., I learnedabout a secret group within the social-network company called “T.N.R. 250”; itwas an abbreviation of “The Nouveau Riche 250,” comprising Facebook’s first250 employees, many of whom had become multi-millionaires. The members ofT.N.R. 250 privately discussed things they wanted to buy with their windfall,including boats, planes, Banksy portraits, and even tropical islands.Whenever I even suggested the word “bubble” in my reporting, I became apunching bag. After I scrutinized the ethics (and preposterous valuation) ofPath, an ill-fated social network, Michael Arrington, once a nexus of power inSilicon Valley who had invested in the start-up, called me a “pit bull” andsaid I wasn’t a very noble person. But lately the worries have spread. Thereare now fast approaching 100 unicorns based in the U.S. alone, and counting.The NASDAQ recently closed at an all-time high, surpassing a record set rightbefore the dot-com crash in 2000. The Shiller P/E ratio, a measure of theratio of price to earnings, has a number of investors worrying, with The WallStreet Journal noting that it shows stocks are “frothy.”Lately, in fact, even some of the most aggressive V.C.’s have cowered. Notlong after the Andreessen Horowitz presentation, Roger McNamee, co-founder ofthe private-equity firm Elevation Partners, told CNBC, “We are going to have acorrection one of these days.” Bill Gurley, a partner at Benchmark Capital andAndreessen’s nemesis (“my Newman,” as he recently put it, referring to theSeinfeld character), echoed this sentiment on Twitter, venture capitalists’preferred platform of communication. (Many are staked in it.) “Arguing wearen’t in a bubble because it’s not as bad as 1999,” Gurley tweeted, “is likesaying that Kim Jong-un is fine because he’s not as bad as Hitler.” (Gurleydeclined to comment for this story.)But the best way to understand the current situation in Silicon Valley is torecall the last bubble. Mark Cuban, who sold his Broadcast.com for $5.7billion several months before the dot-com bubble burst, told me that there isno question whatsoever that we are in the midst of another one. And as withthe last one, there is no question that a lot of people will be devastatedwhen it pops. “The biggest of all losers will be anyone who has borrowed moneyto invest in private companies,” he told me. “You were stupid. You blew it.You lost. That simple.”## “This Is Hubris”Perhaps the clearest way to observe the tech industry is through itsarchitecture. When the I-280 deposits you into San Francisco, the view is likeno other in America. To the left, waves of thick fog roll slowly off TwinPeaks. To the right, dozens of massive container ships sit like specks on thebay. If you drive farther into the city, toward gilded Nob Hill, the area thatonce belonged to the robber barons—the city’s original entrepreneurs—is nowfilled with upscale boutique hotels. But as you enter the city itself, everycorner of the sky appears the same: spikes of lanky cranes protrude hundredsof feet into the air, their fishing lines plucking concrete and steel fromstreet level, stacking these beams atop one another.San Francisco, a city that zones about half of its land for residential use,is on track to increase its office space by 15 percent, with a majority of itpresumably allocated for tech start-ups. Travel about 50 miles south toCupertino and you will see the site of Apple’s new gargantuan glassheadquarters, “the Spaceship,” designed by Sir Norman Foster, which will span2.8 million square feet and house more than 12,000 employees. And then there’sthe new, recently occupied Facebook building, designed by Frank Gehry, withits rooftop park and what it claims is the largest open floor plan in theworld. Google is currently planning its own updated campus—this one designedby Bjarke Ingels and Thomas Heatherwick— that will include an army of smallcrane robots, known as “crabots,” which can move office walls, floors, andceilings and transform the spaces in mere hours.Yet there may be no greater monument to what’s going on in the Valley than the1,070-foot edifice under construction at 415 Mission Street. The new, glassySalesforce Tower is slated to soon become the tallest building in SanFrancisco, rising more than 200 feet above the Transamerica Pyramid. And thatmay be a big problem. Vikram Mansharamani, a Yale lecturer and author of thebook Boombustology, has argued that virtually every great bubble bursting hasbeen preceded by an attempt to build the tallest buildings. Forty Wall Street,the Chrysler Building, and the Empire State Building were under constructionduring the onset of the Great Depression. The Petronas Towers, in KualaLumpur, were completed in time to inaugurate the Asian economic crisis. TheTaipei 101 tower, once the tallest building in the world, laid its foundationright at the height of the dot-com boom.Some of these buildings, which were erected through money obtained partly frombubble-gotten gains, rode on the assumption that the markets would continue torise and there would be enough tenants to fill their floors. This trend hashistorically been true in other industries, too. An inflated art market,according to Mansharamani, is another troubling indicator of overconfidence.(Last May, Christie’s, Sotheby’s, and Phillips broke records by selling atotal of $2.7 billion of art in a week and a half.) There’s also a precociousindicator some economists refer to as the Prostitute Bubble, where the fillesde joie flock to increasingly frothy markets. (While it’s difficult tosubstantiate this theory, several bars in the city are well known for thiskind of deal-making.) “I think we are absolutely in a condition that you wouldqualify as bubbly by any stretch of the imagination,” Mansharamani told me.“This is hubris, chest-bumping behavior: Bigger. Better. Wider. Me.”In more quotidian ways, the mania that presided over 1999 is also back. During2013, high-tech workers up and down the peninsula were reportedly paid nearly$196,000 a year, on average, and some made several million dollars in stock.Other programmers have their own agents, much like Hollywood stars. Someinterns have been paid more than $7,000 a month, which adds up to about$84,000 a year. (The median household income in the United States is around$53,000.) Snapchat has offered Stanford undergrads as much as $500,000 a yearto work for the company. Jana Rich, founder of Rich Talent Group, a well-regarded tech recruiting firm, told me that she hasn’t seen such bidding warssince the late 90s. “I’ve seen two of these life cycles, where things aregoing fabulously well,” she said. “Then we have the bust. We are now, in myopinion, at the height of the demand curve.”Other tech recruiters noted that every little detail of the hiring process isagain up for negotiation, just as it was in 1999, with an increased emphasison extravagant stock-option packages that could ultimately yield severalmillion dollars. This era also brings the allure of all manner of gourmetcafeterias, exercise rooms, open terraces, and unorthodox cubicles. Sometimesthe demands are prosaic: one recruiter told me that an engineer requestedcloser proximity to the free-snack station. Other times, less so: a Googleexecutive was reportedly paid $100 million not to leave the company for acompetitor. Google, or its new parent company, Alphabet, seems to have enoughmoney to throw some of it away.This euphoria has created a debauched culture that also hearkens back to thelast bubble. In 1999, thousands of instantly rich young people would line thecity streets and cram into bars and event halls to gorge themselves on theendless flow of multicolored booze and hors d’oeuvres. Every night, it seemed,a blowout was being thrown by companies like Kozmo—a precursor to Postmates orany of the current errand-running sites—that later lost more than $250million. Some parties had acrobats and fire-breathers. Others gave awaygadgets and clothing.Now a recent “Product Hunt” Happy Hour, where entrepreneurs network withinvestors, attracted more than 4,000 people, according to the Facebook invitepage. At another event, hosts handed out free Apple TV set-top boxes as thank-you gifts. A prominent Facebook employee’s birthday party was orchestratedlike an elaborate wedding, with ice sculptures, chocolatiers, and half a dozenwomen who walked around with card tables hanging off their waists so thatguests could play blackjack while staring at their chests. A Googleexecutive’s “40th-and-a-half” birthday party had elaborate acrobatics. Inrecent years, Burning Man, the annual art-and-music festival in the Nevadadesert, has started to swell with venture capitalists and employees fromGoogle, Twitter, Uber, Facebook, Dropbox, and Airbnb. (In 2012, MarkZuckerberg flew in for a day on a helicopter.) These newly minted rich haveeschewed the paltry sleeping conditions for private camps on what has becomeknown as “Billionaires’ Row,” where some spend the night in custom-built yurtswith their own power generators and air-conditioning. The most luxurious campscan come with teams of “Sherpas,” waiting on tech elite at a three-to-oneratio.