A Deep Bay Area Recession is Not Looming
The following letter to the editor from Bob Karr, the CEO and founder of Link Silicon Valley, was originally published in the Viewpoints section of the Silicon Valley Business Journal.
After reading your interview with Ken Rosen (“The sky is falling? Leading economist predicts tech-led recession soon,” online Feb. 14) I want to offer a different perspective.
Though his general points are accurate on the surface, the data he draws from doesn’t reflect the full story of tech in the Bay Area. As a point of reference, my company, LinkSV, founded in 2001, tracks 14,700 companies, 190,000 executives, all Bay Area VC firms and all corporate and angel funding in the technology sectors.
The factors Ken referenced and additional data lead me to a different conclusion. While I expect a stock market correction, it will not be a dot-com-style crash. It will be tempered because companies are stronger today with steadily increasing technology adoption worldwide.
Market corrections are normal in the tech sector. After losses are taken, subsequent investors form a stronger base. For example, Google and LinkedIn rose out of the dot-com crash, while Houzz, Uber, AirBNB and Square rose out of the Great Recession. The question is, will today’s stronger companies perform better in the next market correction? I believe that there are many professional investors ready to jump in on the opportunity of market dips.
Yes, housing prices continue to rise but there is a wealth of local talent to hire. Companies continue to move non-critical jobs such as IT, finance, administration, customer support and operations to lower cost regions while keeping core talent close at hand. But Silicon Valley has always done this, seeding tech centers in Austin, Portland and Seattle.
As for the unicorns, they evolved from strong business models, with leadership that has access to rich data analytics, helping these companies know when to pivot early to avoid poor results. From the analysis of our data collection at LinkSV, we see significant new funding in emerging areas such as artificial intelligence, the Internet of Things, cannabis and bitcoin/blockchain, and huge growth in security, data, healthcare and other sectors.
Technology investing continues to be strong. At LinkSV we have recorded about 1,000 companies receiving new outside capital annually over the past 5 years. However, this is not the whole story: Investors are making bigger bets on the larger and stronger companies. For example, in 2018 there were 75 companies who received $100 million or more of new capital compared to an annual average of 42 from 2014 through 2017.
Though I fully expect a total stock market correction, tech companies today are stronger, and the steadily increasing technology adoption by business and consumers will significantly temper a market correction for them.
CEO & Publisher, Link Silicon Valley