✦ Is the tech boom over?

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Hi Quartz members,

Tech companies are having a rough month. Startups are announcing layoffs, valuations have dropped in both public and private markets, and venture capitalists are doing fewer deals. The boom-time vibe is over, and tech Twitter is replete with tips on tightening the belt.

Analysts have been warning off and on about a tech bubble for 10 years, but tech bounces back every time. So is this the year the gravy train finally stops? Not necessarily.

The watchword in conversations with analysts and investors is uncertainty. Tech markets are resetting after a decade-long boom and a record-setting 2021—and responding to inflation, higher interest rates, and the war in Ukraine. No one knows for sure what the rest of the year will hold.

It’s easy enough to imagine a “soft landing” for tech rather than the historic downturn some observers are warning about. The optimistic case starts with the fact that VCs still have an unprecedented amount of money to invest, and eventually they’ll get back to doing just that. If there is a recession, it may well be a mild one—not a cataclysmic event like the financial crisis of 2008. And the demand for tech from consumers and businesses remains strong.

The worst-case scenario for private tech markets involves a prolonged economic slump and significantly higher interest rates. In that world, venture capital investing is hampered for most of 2022; when it ends, interest rates are considerably higher than they were last decade. Higher interest rates make stocks less attractive relative to bonds, which could push some investors away from VC.

For now, deals are still getting done, especially for earlier-stage companies. But psychological factors make a difference. The longer things stay bad, the worse they can get. “The vibe matters, and that’s a lot harder to predict,” Michael Chui, a partner at the McKinsey Global Institute, told Quartz. As Eric Paley, a managing partner at Founder Collective, put it, “People have to be able to dream to invest in stuff, especially at aggressive prices.”

 The backstory

• Venture capital exploded in the 2010s. The industry went from a niche field located almost entirely in Silicon Valley and Boston to a massive global asset class that invests hundreds of billions a year. VCs made lots of money for their investors, so more money poured in.
• Last year, startup investment smashed records. After a brief panic over covid, VCs invested even more money during the pandemic. Startup investment in 2021 reached new highs in almost every region and sector.
• Now tech markets are spooked. That’s thanks to inflation, the expectation of higher interest rates, and the invasion of Ukraine. Lower valuations for public tech companies are forcing later-stage startups to lower their expectations, and that valuation reset is rippling through tech.

📉 Stonks interlude

The 10 biggest tech IPOs of last year are all struggling. Crypto exchange Coinbase and electric-vehicle maker Rivian are the worst of the bunch, down nearly 80% since the start of the year.

What to watch for next

1. What the big guys do. SoftBank, the giant of VC, this week announced plans to cut its startup investing at least by half. If other massive funds like Tiger Global do the same, it’ll make fundraising much harder.
2. All eyes on the NASDAQ. The tech index is a bellwether for the industry, and has historically been strongly correlated with VC funding.
3. How low can crypto go? Bitcoin has plunged, the “stablecoin” TerraUSD is… not living up to that moniker, and Coinbase’s stock price is down 79% from the start of the year. Crypto startups have been one bright spot within tech, but that could change quickly.
4. The Instacart IPO. The grocery delivery company, which filed confidentially this week, cut its valuation by 40% two months ago. If Instacart goes public at that adjusted value or higher, that’s a good sign for tech. If it IPOs and tanks or pulls the offering, expect six more weeks of winter.

One 😢 thing

This week, Apple announced it would no longer produce iPods, the generation-defining device it launched in 2001. The iPod debuted during the dotcom crash, as internet startups were shuttering and investors were looking for more stable bets. There’s a well-worn trope in tech that the best time to start something is when the market cools: Employees are easier to hire and there’s less temptation to raise too much cash. Launching something new in tough times is, well, tougher. But historically lots of great products and companies get started when everyone else heads for the exit.

Quartz questions to spark conversation

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5 great stories from elsewhere

⛰️Back to the Grand Canyon. In the New York Times, Quartz alumnus Thomas McBee returns to the national park he visited as a child—this time with his mother’s ashes. 

📖 “Banned-book clubs.” In the Washington Post, Hannah Natanson reports on teenagers around the country meeting to read the books they aren’t allowed to read in school.

🇩🇪 A giant of philosophy weighs in on Russia. Historian Adam Tooze explores the role that 92-year-old Jürgen Habermas plays in German politics—including his country’s debate over how to respond to Russia.

📊 Inputs > outputs. Tom Critchlow argues that companies’ dashboards capture all the wrong stuff. They focus on outputs when they should be focused on inputs, and they’re a “battleground for power” in the organization.

🌍 A better globalization. Economist Dani Rodrik explores what comes after the “hyperglobalization” era, and which parts are worth giving up on.

Thanks for reading! And don’t hesitate to reach out with comments, questions, or topics you want to know more about.

Best wishes for a best-case-scenario weekend,

—Walter Frick, executive editor