If you’ve paid a modicum of attention to the thriving success of the tech industry over the past decade or two, you’ve likely wondered how long the bubble could stay together. According to research compiled by national organizations, the value of the tech industry within the United States alone exceeded $1.8 trillion in 2022, accounting for over 10% of the entire GDP of the United States of America.
Fueled by thousands of companies and embraced by millions of consumers around the world, the need and demand for unprecedented technology has never been higher than it is now. This need, set against the backdrop of the recent COVID-19 pandemic, only makes Tom Stafford of DST Global and his warnings at the Bloomberg event even more prescient.
Let’s dive into the realities of a tech recession while seeking to better understand Tom Stafford’s outlook on what comes next.
Dealing With a Recession
When discussing the realities of a recession, it takes almost a cold outlook to deal with it without heavy emotions. Tom Stafford spoke at a Bloomberg event where he discussed the realities of ‘unicorn’ companies and how their over-appearance may lend credence to a potential recession. Stafford stated during his interview on stage, “Thousands of companies need to go out of business between now and 2023.”
In financial terms, a recession is defined by a persistent decline in the economic activity of a specific region, usually reflecting this decline by lessening the value of its gross domestic product, or GDP.
Gross Domestic Product is a term that refers to the market value of all the goods and services rendered and produced by a specific country throughout a certain period. Two straight periods of regression concerning GDP growth typically will signify a recession in action.
Dealing with the specifics of Venture Capital requires a more rounded understanding of what VC actually is. Venture Capital is a private equity system that invokes capital from investors handed over to start-up companies alongside other small businesses. Investors can be individuals, larger financial institutions, or simply companies.
Venture Capital investors offer much more than just capital to the businesses they are partnering with. Some venture capital investors offer management or tech skills as well as professional access.
Venture Capital ecosystems are unique in that they target emerging companies seeking large sums of money for the first time. This VC ecosystem is similar to a biological ecosystem in that it helps to create a symbiotic relationship between investors and new businesses, providing benefits to both.
Tom Stafford displayed a chart at the 2022 Bloomberg Tech Summit that showed a 70% increase in private companies valued over $1 billion from 2018 to 2021. Referring to the mythical unicorn, Stafford underscored the fact that suddenly there were too many unicorns and that this could be a sign of a problem.
As the tech industry is anything except recession-proof, many industry insiders and professionals are gearing up for what comes next. Major institutions, including Tesla and Meta, have experienced undeniable setbacks in terms of their value.
Even though the recession is hitting the pocketbooks of significant corporations and organizations, workers are the most impacted by the bottom line. From November ’22 to January ’23, more than 18,000 employees were terminated from Amazon alone. Mark Zuckerberg at Meta has invoked similar plans for his business.
Looking to the Future
At the time of this writing, Tom Stafford of DST Global believes that many major tech companies will experience turbulence, if not outright bankruptcy, in 2024. While many individuals determine that this is due to the looming economic downturn, Stafford believes that this is all part of nature’s course-correcting itself.
Pointing to the prevalence of overvalued companies, Stafford suggests that they are akin to the mythical unicorn.
Tom Stafford said at the Bloomberg Tech Summit in London, “A company is real when it has the viable technology that nobody else has and/or the viable profits that are defensible that nobody else has.”
Stafford added during his appearance at the Tech Summit in London, “This is perfectly normal. Not every company should make it; there’s no problem with that.”
Speaking to not just his own experiences but to those of many others sure to come in the future, Stafford stated, “We should embrace failure; it’s not a bad thing. Failure means we tried, we recognized that it didn’t work, and we moved on to the next thing.”