This is certainly nothing new to us: there are serious amounts of investor capital feeding into tech startups.
So much so that news of a mobile app, social media, cloud, or data analytics business raising millions of dollars is just an ordinary, everyday headline in the media. A $1 million seed round, a $50 million Series A tranche, a company newly valued at $750 million. What’s the big deal?
There’s continual debate in the tech world as to whether or not all this is indicative of bubble activity, from stalwarts such as Marc Andreessen, and more recently, Mark Cuban. Nonetheless, there seems to be a general consensus that things are substantially more active than normal, when it comes to the flow of investor cash into startups.
Entrepreneurs have been putting this money into growing their companies, mostly by hiring more staff. A tech startup typically begins with a very minimal cadre of founders and software developers. Once sufficient funding is realized, the business then dramatically expands its ranks with expertise in sales, marketing, HR, and of course, tech.
Many, many jobs have been created on the inflow of capital into the tech world. So much so that we’re seeing adjacent businesses thrive in areas such as recruiting and digital marketing, not to mention catering, personal training, and massage. Is this cause for concern? To me, the answer is yes.
Startups are burning through their cash at alarming rates, in efforts to scale up their companies for further funding rounds, an eventual IPO, or a merger or acquisition. The problem is that the dependence of the tech world on VCs and other sources of funding seems to have become extraordinarily high, and with that, the resultant jobs generated. Spending cash too quickly (and losing money) isn’t seen as much of a concern, given the abundant opportunities for fresh new rounds of funding.
For this cycle to continue into perpetuity, one or both of these scenarios need to happen:
Startups become self-sustaining companies that can generate profits and organically prosper on their own.
The appetite for investors to throw their money into tech continues unabated, with an endless supply in the pipeline from Wall Street.
I’ll leave it to you to opine on whether these outcomes are realistic.
If something negative does happen on a macroeconomic scale, with a dramatic pullback in capital for funding tech companies, the resultant effect on jobs would most certainly be drastic. Here’s what could ultimately happen:
Job losses for IT, developers, programmers, software engineers, and the like would become great opportunities for enterprises and other established organizations to recruit them. Remember that there is an ongoing shortage of these professionals to fill the insatiable demand for them.
For those in sales, marketing, HR, and recruiting, unfortunately the situation will not be nearly as rosy. Jobs in these areas won’t be made available elsewhere, especially in the midst of an economic downturn. This would be a situation not unlike the aftermath of the housing and mortgage crises of the late 2000s.
No one likes to talk about negative outcomes. But they do occur from time to time, and ignoring them never prevents their eventuality.