“When the market turns, and it will turn, we will find out who has been swimming without trunks on … Many high burn rate co’s will VAPORIZE.”
— Venture capitalist Marc Andreessen via Twitter in September 2015
Several months ago, a house in my old San Francisco neighborhood sold for $4,650,000, all cash, merely days after it hit the market.
That’s over $2,000 a square foot. Zillow.com, which tends to be very accurate, “Zestimates” the price at $2,583,624 – 93 percent higher and 113 percent more per square foot than the area’s median. Surprise, surprise, the buyer was a tech worker. Whether he was trying to swing his manhood around Buena Vista Park or he was afraid of a bidding war, this poor sap plunked down a million bucks over asking for a house worth about half of what he paid. He better stay until they take him out feet first, because he’ll never get his cash back on a deal that crazy. God forbid he gets transferred, or his company lays him off or tanks, because that all-cash price tag doesn’t include those pesky property taxes, which at his purchase price will be around $60,000 per year.
Maybe he works for a unicorn, a term given to venture-backed firms valued at more than $1 billion because they were once so rare, but lately are as common as rats in a Manhattan subway. While older unicorns are familiar names like Uber and Airbnb, the latest crop are smaller, even riskier enterprises, like clothing e-commerce website Farfetch.com. More than 80 private companies now boast valuations over $1 billion, fueling fears of another tech bubble even from highly successful venture capitalists like Marc Andreessen. If it sounds like I am familiar with unicorns, that’s because I saw a few during the first tech boom. I also saw some of my colleagues overpay for houses with their unicorn gold, and let’s just say things weren’t so pretty at the other end of that rainbow.
I joined a dotcom start-up called LookSmart in the late ’90s, where a great deal of my compensation was based on stock. Before the IPO our underwriter, Morgan Stanley, sent an advisor to meet with employees one-on-one in the conference room behind the Foosball table for advice on turning stock options into the American Dream. For one friend — let’s call her Jenny — it was intoxicating. “I can margin stock, even the unvested options,” Jenny said. “My father taught me margining is a bad idea,” I replied, but Jenny was too high on her future as a gazillionaire to hear.
The day LookSmart went public, employees were high-fiving over their fortunes. “I am worth $3 mill,” one cocky engineer said. “But I’m not gonna sell because I know it’s going up!” The following Monday, our parking garage looked like a luxury car lot: Ferrari, Maserati, Lamborghini, Mercedes, BMW. the company’s owners, a married couple from Australia, even bought themselves matching Jaguars. Jenny swooped by my desk. “I bought a house,” she said gleefully. “In Oakland.” She paid half a million bucks. “Why would you pay that much?” I asked. “Because my Realtor told me 20 other people wanted it,” she said. The cottage, in a sketchy area off MacArthur Boulevard, was listed for half what Jenny eventually paid.
A few months later, the dotcom bomb exploded. LookSmart’s trendy, unsustainable stock dropped like a Pet Rock, and people started getting those scary e-mails — the ones that drained all the color from their faces. A group would rise from their desks simultaneously and head into a conference room like lambs to a slaughterhouse. They came out an hour later, sometimes crying, sometimes mad, gathered their things in a cardboard box, and were escorted from the building by security.
Seeing the writing on the wall, I left LookSmart to take a position at
eFrenzy.com, an online marketplace for services that was Yelp and Angie’s List 1.0, where businesses paid to be listed or advertised on the site and customers wrote reviews. One Friday afternoon I received a tearful call from Jenny asking if I could come to her house. “Of course,” I said, knowing she had received one of the dreaded electronic pink slips. When I arrived, Jenny was sitting on her brand new sofa with a bottle of wine and her laptop. “What am I going to do?” she asked. But she didn’t have to make a decision, because the bank made it for her by foreclosing on her house. Homeless and unemployed, Jenny moved in with a guy she wasn’t all that crazy about, and we eventually lost touch.
Things were shaky at eFrenzy, too. Like most tech start-ups, we were burning through our funding by over-hiring, throwing lavish parties, increasing marketing expenses to keep up with competitors, and buying Foosball tables. I got one of those electronic pink slips, which led me to a $150,000-a-year job as brand manager at iSyndicate.com, even though I had no idea what the company did (actually, I still don’t). Start-ups were trying to hold on after the downturn, but venture capital was scarce. Once willing to throw millions at dreamy-eyed kids with a domain name and an idea, investors were now cautious about “burn rates.” One spring afternoon, iSyndicate sent me one of those electronic pink slips, along with half the company.
A week later I headed back to SoMa for lunch with a former eFrenzy associate who fell victim to a second round of layoffs. Afterward, I wandered in a daze by all the empty office spaces, including one where I once interviewed. I didn’t get the job (I can’t even remember what they did, either), but the jovial 24-year-old CEO was happy to show off the 200 new Herman Miller Aeron chairs he recently purchased with his first round of seed money. Now, he was in a dotcom ghost town with Herman Miller tumbleweeds. We chitchatted for a while about the crash-and-burn start-up landscape, and then he offered me a chair. “The Aeron is in the permanent collection at the Museum of Modern Art in New York,” he said, rubbing the mesh suspension on a sleek teal green number I was eyeing. “They were, like, almost a thousand bucks each.”
I called my boyfriend and he loaded the teal green seat of art into his rockabilly band’s van. At my Victorian in the Haight, we set the Aeron in front of the lime green iMac my manager from iSyndicate tossed into the trunk of my VW Beetle the day we got those electronic pink slips. “I think I want to work for myself,” I said.
Years later, the boyfriend is an ex-boyfriend and I gave away the computer, but I still have the Aeron, I still work for myself — and I’m still more afraid of subway rats than unicorns.
