I arrived in Silicon Valley in 1997, in time to witness the dot-com boom. By the end of 1999, the Nasdaq was up around 400% from the time of the Netscape IPO just 4½ years earlier. Palo Alto restaurants were crowded with people talking about their startups and flaunting their paper wealth. While waiting for a table at Buca di Beppo in Palo Alto, I saw a man hit on a woman by pointing to his friend and saying, “Do you know who this guy is?” It turns out he wasn’t anyone notable, but he did have pre-IPO shares in a dot-com! That alone, in 1998-1999, was considered success. There was a sense of entitlement and arrogance—that, simply by showing up, you had won.
By 2000, the inevitability of wealth came into question and stocks plummeted. The Nasdaq had its largest single day drop in April 2000, falling almost 10%. It then fell a devastating 75% over the next several years. Fucked Company, a site dedicated to chronicling the demise, had daily reports about layoffs and bankruptcies. Friends who had millions of dollars on paper lost everything, sometimes bankrupted by tax laws that wanted to tax them on gains that had evaporated. People with impressive sounding VP and CEO titles were out of work and moving back into their parents home. The good times ended as quickly as they started.
The people who stuck around Silicon Valley after the crash loved technology, loved building businesses, and didn’t care so much about getting rich. Many of the people who were looking to get rich left for finance jobs in New York (yes, they left one bubble and walked right into another).
The era of opulent parties and people bragging about their paper wealth was over. In its place was an era of thrift. It was a return to the garage culture that existed when Silicon Valley first began. People were bootstrapping their companies. Flickr famously avoided outside financing and sold to Yahoo for what at the time seemed like a terrific exit (in retrospect it was a humble amount, about 5% of what Instagram was able to get from Facebook in 2012).
That sense of thrift has receded in recent years, replaced by a mood of unlimited money and easy wins. There is a dangerous sense that arrogance is replacing prudence. Startup salaries have increased 50% from the humble days of 2003. Startup CEOs are asking for $200,000 a year to run a company that has only a few million in the bank and no revenue. Parties are being thrown to celebrate funding announcements rather than product milestones.
Would you spend money this way if you knew raising your next round would be difficult? It’s easy to raise money until it isn’t. Paul Graham put it best: “Apparently the most likely animals to be left alive after a nuclear war are cockroaches, because they’re so hard to kill. That’s what you want to be as a startup.”