The tech “bubble” that has been growing in Sillicon Valley began to attract attention when successful startups-gone-global-franchise like Uber, Lyft, and Airbnb were valued at up to 100 times their actual profits (which are themselves generally kept as much of a secret as possible). Many analysts are warning against large-scale and late-coming investments in companies that have little to no chance of generating more money with the flood of investments coming in. They say that private companies are not likely to see their investors’ money turn into more money, and private investors aren’t likely to ever see their money again.
So yes, a lot of money stands to be lost in the private sector when the tech bubble finally bursts. But who else is likely to be affected by this economic downturn, and do average Joe’s have reason to fear? Economists like Christopher Thornberg of Beacon Economics state that the bubble should be relatively isolated and that the major consequences would be simply that “all these millionaires would suddenly have to rein in their spending some.” That said, few economists saw the great recession of 2007 coming.
And if a bubble causes other areas of the economy to become unbalanced and stop being based in reality, when it bursts those aspects can be majorly affected as well. This isn’t necessarily a bad thing; likely the exorbitantly priced home and office rents in cities surrounding the Sillicon Valley (most notably San Francisco) will finally drop down to more doable prices, and anyone in the market would be highly advised to buy at that point.
In addition, there will likely be less cut-throat competition among companies looking for programming talent. Unfortunately, a lot of programmers stand to lose their jobs when the bubble bursts, but there will be many companies waiting for them with open arms.
That said, a fair amount of negative consequences can also be expected. While the venture capital being pumped into doomed startups may heighten the prices in San Francisco and Manhattan, it also subsidizes services that make it cheaper and easier for people to operate their own non-venture-backed startups. Helpful services used by small businesses like Shyp, Postmates, Zenefits, and Slack may fail or become more expensive if and when the tech bubble bursts, which means anyone with their own company that relies heavily on those services is going to have to find new ways to adjust to the bad news.
And of course, the companies that receive or want to receive venture money are going to face a major existential crisis. When the 2000 bubble burst, the funding allocated to private tech fell by over 80 percent and took a full decade to return to the heights where it once was. Of course, during that decade tech goliaths like Facebook, Twitter, SpaceX and Dropbox (a precursor to Google Cloud) all still managed to come into existence. It was just a little harder than it would have been.
In the face of the potential bubble burst, many VC-backed companies are trying to raise more money than ever, hoping to stow away a little “bubble insurance.” They may need more than they can imagine.