"Crying Towels": Silicon Valley's Next Big Investment Op

Tyler Durden's picture

Authored by Mark St.Cyr,

Nothing focuses the mind more than either the lure of riches or, the loss of them. And there has been no other group caught up more in the lure for riches than: the disruption class.

Disrupting is what it’s been all about over these last few years. However, there’s another disruption on the technological horizon heading right towards Silicon Valley itself, and that brewing storm is – disruption of the disrupt-ers.

The once emblematic IPO cash-out that lured many is beginning to morph into the loss of IPO dreams that resemble wash-out with every passing earnings cycle. For a glimpse into the event horizon that is the future. All one needs to do is look no further than what myself and a few others have dubbed the “canary in a coal mine” of all that’s Silicon Valley: Twitter™.

Nothing against Twitter per sé. What I take issue with is its valuation vs its ability to produce net profits. And that goes not just for Twitter, but everything “social” in general.

I’ve stated from the get-go Twitter is a great, innovative platform. But worth Billions, upon Billions of dollars? Sorry, far from it. One of my assertions has always been; would you pay for it if they charged you? What if charging you meant you could type more than 140 characters? Would that be enough to entice? Usually the answer from my own unscientific (as well as gut) research came back with a resounding no. And here lies the problem that’s symptomatic of many others that will once again come to light and be amplified this earnings cycle. More so than the last in my opinion.

Twitter is (again, in my opinion) a real-time microcosm of what’s about to hit the whole Valley. i.e., A real shite storm, and here’s my reasoning…

There are two issues that are very different for both a company as well as the narrative of a whole industry supported by the wings of such a “canary.” And both of these go a little more than unrealized by those not familiar with them. For it hits right at the heart of how a meme or, a presumptive “It’s different here” attitude takes hold when true business principles, disciplines and more get lost on those desperate to not see their world view crushed. But business in its purest form has a way of doing just that – crushing naive or wishful assumptions.

First I must draw attention to the fact Twitter as well as many around Silicon Valley celebrated the news that Jack Dorsey was to be named as the new CEO. Personally I have no axe to grind with Mr. Dorsey. He seems like a brilliant innovator with great vision. What I do take issue here is; not only is he now CEO at Twitter, but also, at Square™. Another, at face value, brilliant start-up with great further potential. Which is also where lies the problem. Mr. Dorsey is now slave to two masters – and when it comes to business, especially at the levels and headwinds facing the whole disrupting based technology driven platforms – it’s credulous to think one can do both.

I say this because I know first hand just what it takes to be a CEO, for I’ve been one. The other is, I earned my reputation as a turnaround executive because I’ve personally done it more than once, at differing companies, and at sizable valuation levels so it’s not as if I don’t know what I’m talking about.

The only reason any company with potential for either real growth, let alone possible explosive styled growth (which in the Valley is the only metric that still matters) would pick (if not outright beg) an executive that can only devote 50% of their resources to run a once high-flying song bird which desperately needs direction – reeks desperation.

No one else in all the world let alone Silicon Valley was up to the task? A multi-BILLION dollar publicly traded enterprise on the forefront of all that Silicon Valley represents can’t attract any other CEO talent who could devote 100% of their abilities? This makes absolutely no sense what so ever unless: the board, as well as many investors are panic-stricken on just how bad things are behind the scenes and figured; the best they could do was to bring (or convince) a person such as Mr. Dorsey back on as CEO, spin the narrative as much as humanly possible, and pray Wall Street buys it. Literally.

Second: How does Square do the same to that circle where it itself is getting ready to IPO? I can not imagine for the life of me any serious business person, of any stature, that would postulate it would be a good idea to let its CEO devote 50% of their resources away from their now chosen organization at such a critical juncture. Not only that – to then reach back and devote the remaining 50% and try to mend the broken wings on a clearly fumbling entity. Unless – the decisions were all driven by intermingled investors between the two. In other words: This is all about saving stock (or IPO) values or, cashing out valuations. Not about saving or revitalizing a company. Or, for that matter – what Square will or might be after its IPO debut. Something here just isn’t right.

Mr. Dorsey might be a genius and some have used the “Jobs” reference. However, I will stress from a business standpoint – no board worth its weight garnered by true business acumen would even allow Jobs himself to run as CEO two companies at the same time. Period.

The only one’s that would suggest such a plausibility would be on the “investor” side. Again, it’s all opinion and conjecture on my part, but it comes from business experience – not some theoretical book or exercise. I believe it’s the investor class in Silicon Valley that’s showing signs of being completely paranoid and about to go spastic with the possibilities portending them losing their enormous paper wealth created only via “free money” pushed via QE.

Once QE ended, everything changed for Silicon Valley yet, they refused to see it being blinded by “it’s different this time” thinking and belief. Again, I believe Twitter is that microcosm that needs to be watched far more closely for insights into all that’s Silicon Valley than many now are contemplating.

So far Twitter’s share price can’t seem to get back off the ground unless there’s some rumor about either it being a take-over target or, something else. And with that comes something else that shows just how much things are no longer “different this time.” i.e., Lower valuations for longer in public companies mean only one thing: who’s getting fired or laid off first? And that’s what seems to have happened to social media’s best representation of a “canary.”

This is the type of stuff only heard in tales of yesteryear. (I.e., the last dot-com crash) I mean, technological (i.e., coders) staff being let go? The very people responsible for the product and all its innovation, not to say; for the innovation that will be needed to turn around such an entity? Those are the people to go first? 8% of its workforce? You hear announcements like this from legacy companies not – “the hottest space in all of Silicon Valley.”

And this brings on a whole host of other meme shattering, break out the “crying towels” type arguments. For if it can happen there – guess where else it’s going to begin happening? Is ________________ next? Just fill in your current favorite high-flying Non-GAAP social darling on that line – for it’s going to happen at all of them very soon in my opinion. Much sooner than many now even think or ever thought possible.

“Coders” will gladly live in some single bed shared between 8 others apartment somewhere near the Valley. Heck. they’re now reporting stories how one can live in a shipping container on the cheap in San Francisco. Sounds fantastic right? Well, it is. As long as the dreams (and expectations) of landing the dream job in a start-up or similar where riches based in stock options and more are forthcoming or, dangled like carrots in front of wide-eyed dreamers.

There’s nothing wrong with lumping it out with the hope of future pay offs. I did similar things when I was young. It’s a risk reward thing and I champion those willing to take the chance.

However, you know what changes everything? When the meme of “Gonna stay here till I cash-in and then I’ll buy me a McMansion!” turns into the underlying realization that quite possibly – you’re going to end up living in a shipping container! Possibly forever if things don’t change.

Suddenly Mom and Dad’s basement looks like paradise, and the thought of leaving “The Valley” becomes more, and more front of mind with every passing IPO failure or failure to launch. Don’t let this point be lost on you. For it’s a tell-tale sign things are changing deep within when it can be noticed shipping container apartments or, communal type living begins to lose its appeal among this set. For when reality bites – it bites hard.

Now might be the perfect time to take a position in any solid company with the ability to manufacture quality “crying towels” and get them quickly to market. After all: Unicorn tears we’ve all been told are far different from most others. And sales of a good quality product might be more in demand than anyone ever though possible very soon.

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Larry Dallas's picture

Agree with this article 100%

Bumpo's picture

California is Ground Zero when the SHTF

roisaber's picture

I live over the hill from Silicon Valley, and that place scares the shit out of me. I can't get the myth of Atlantis out of my head when I'm over there. (Or the Kingdom of Zeal from Chrono Trigger, but you know, video game reference.) The less you do, the more you get paid to do it, and the biggest consumer of Silicon Valley's "products" appears to be Silicon Valley itself. There was a rumor floating around of a new start-up called Buttn. It was a wifi-enabled button. When you push the button, it sends a ping to a random website. That's it. I'm still not sure if it was a joke or not.

El Oregonian's picture

I was raised in the Santa Cruz mountains and finally left in 1991. It went from a valley of orchards to a valley of plastic.

Plastic valley filled with plastic people.

Bumpo's picture

Amazing what a few mile drive will get you from Los Gatos to Redwood Estates .. Those 2 worlds couldn't be any different ... Miss those bike rides down to Soquel

pyramidpower's picture

Bought my first bike in Scotts Valley ages ago and rode it home via the 17. The ride to the San Lorenzo from that area is beautiful on a bike and you beat the car traffic on a nice day. I haven't been in a year or so but I'm guessing the water level has receeded significantly.

El Oregonian's picture

Raised in Felton from 1960 to 1991. Loved the Valley but it was paradise lost.

pyramidpower's picture

I was born and raised in the area, and have been in the Bay Area for decades, and I can confirm that the comment above re: "ground zero" is abundantly clear to anyone observing objectively. Not only is it ground zero for just about any societal tension that could boil over, in addition being its own epicenter of a general economic implosion, it's also going to be the first third world state in the union. It's going to be Bangalore without water.

To your point about "plastic"; the very first tech bubble iteration, which was earlier than most casual observers realize, was driven by real technologists passionate about solving problems. The last two have been driven by marketing-opportunist middle men taking advantage of the VC money and the high-volume transactional applications of existing technology. It's a bunch of amateur motivational speakers fluffing each other's egos in a slowly waining circle jerk. 

The smart natives have either left or are trying to leave because when these bubbles collectively burst it's going to be really, really ugly.

 

 

KnuckleDragger-X's picture

I worked in Silly-con Valley in the 90's as a contractor, mostly for Sun and I made a buttload of money since I heard about new start-ups early. I however wasn't stupid and started bailing out about 8 months before the shit tsunami hit because I never believed. What's happening now is much bigger, with much more money shoveled at it, and just like last time, the good will be dragged down by the bad......

pyramidpower's picture

They are already insular thinkers by and large, and have had that character trait compunded with the additional bubbles constructed around them by the productivity extraction class and the government.

 

There are many more "products" like the one you mentioned above of the same "quality". The biggest base in my observation has been repurposing search toward monetizing any and every transaction along with data mining. The sales driven variety that works using shared cookies is extremely rudimentary. It's the equivalent of being shuttled from room to room at a car dealership being upsold.

Archive_file's picture

You think "Buttn" is bad? Here is a "service" for the well-to-do here in SF that is nothing more than mutual masturbation: www.ifonly.com

pyramidpower's picture

It's Gilt for the Obama donor cohort, but tbey may be a little late to the party.

thebigunit's picture

Not a joke.

There was a rumor floating around of a new start-up called Buttn. It was a wifi-enabled button. When you push the button, it sends a ping to a random website. 

A small, but enormously significant capability.  It WILL change the world.

But presents the classic Silicon Valley problem: How to make money.

Once someone pioneers some "killer apps", the technology will be everywhere faster than you can say "How'd they do that?"

gcjohns1971's picture

There are whole new industries waiting in the wings, that can never get off the ground only because of regulatory suffocation and large-enterprise-government rent-seeking.

The conjuction of CAD, widespread 3d printing for rapid prototyping, and manufacturing streamlined to accomodate small manufacturing runs from such designs could revolutionize the economy in a way that IT alone cannot.

But while the regulatory environment is so preferential to large enterprise in so many ways, this cannot get off the ground.

Ask yourself why there were once dozens or hundreds of car manufacturers in the US, and why they have dwindled to two or three.

HINT:  It is not because the two or three did it better, but because of regulatory and banking preference predicated by our currency design and the Progressive Socialist Collectivist views of those who control them.

 

What we have is not really technological distruption, but only the dribble of disruption the Orwellian World Controllers will allow.

g speed's picture

+1   gov't is obsolete-----

TheFutureReset's picture

You are 100% correct. This is a result of misallocation of capital because tech was the most unregulated sector. Hell kids can't even have a lemonade stand anymore in the US.

People can't innovate on other's material  inventions because the patent laws and enforcement are so suffocating. (now TTP threatens to expand this suffocating regime of patents and copyrights across the globe) Obviously, the innovation was and still is happening in tech. It's not wonder either that "disruption" has become the trend, because the racket has become so abusive. These startups might have a truly valuable innovations, but the regulators reach now expands to those companies' ability to capitalize on those innovations. 

A great example is bitcoin. Great innovation, but the regulators are stifling business adoption and companies from innovating products and services by a cluster of money transmitter laws, confusing taxes, money laundering laws, licensing, SEC regs,  etc etc. 

Bottom line, silicon valley has been the most free market so capital flowed there, but now regulations are keeping new business models from taking shape to actual capitalize on the innovation. 

SixIsNinE's picture

 - well, at least in Colorado the kids lemonade stands are not only still allowed, they pop up all over town and i've not heard of any police harassment of them, so another reason to move to Colorado & continue jacking up the housing $$ ... and no, there haven't been any reports of the kids turning now legal (for 21yr olds) grass into $$ either  :))_ = however our Sheriff just announced his resignation, who knows what tyranny may arise next summer !  

MedicalQuack's picture

Watch this documentary, Cybertopia, the dreams of Silicon Valley, very well done.  Thiel wants an island where all coders can live together...after VC Draper divides California into 6 states..seriously listen to the perceptions of these guys who are code hosing the crap out of the nation.

http://ducknetweb.blogspot.com/2015/03/cybertopia-dreams-of-silicon-valley.html

 

Oh regional Indian's picture

Hah! The first three designs for Bluseed's Ship platform were done by me (ANDC).

Still numbers 1,2 AND 3 on their site: http://blueseed.com/ship/

Yet, they refuse now to return my calls....

Typical niggardly jewish valley behaviour...

Theil, Musk, all cut from the same cloth....

SloMoe's picture
$9 Billion for 15 Blood Tests...

 


Hot Startup Theranos Has Struggled With Its Blood-Test Technology Silicon Valley lab, led by Elizabeth Holmes, is valued at $9 billion but isn’t using its technology for all the tests it offers By
John Carreyrou

Updated Oct. 15, 2015 9:09 a.m. ET

On Theranos Inc.’s website, company founder Elizabeth Holmes holds up a tiny vial to show how the startup’s “breakthrough advancements have made it possible to quickly process the full range of laboratory tests from a few drops of blood.”

http://www.wsj.com/articles/theranos-has-struggled-with-blood-tests-1444...

 

http://www.wsj.com/articles/theranos-has-struggled-with-blood-tests-1444...

Notbettyboop's picture

Not really suprised about the 'value' are we.... www.theranos.com/leadership

15 random tests were probably enough for them, 

 

tarsubil's picture

Holy shit. What a cast of the usual suspects. It's a big club and that blonde seemed to get in at a young age. Wonder what it cost her?

What a deal that they were cleared by the FDA and received a CLIA waiver. What a fucking joke our system is.

mijev's picture

The problem facing twitter, facebook, google is that they didn't create a new market of consumers. They just took eyes and advertising away from TV, radio and newspapers. And if they decide to try and start charging for their services like any traditional company, a new disruptor with a cheaper solution will quickly and neatly step into their shoes. Even the newer disruptors like uber face the same problem because their business model is pretty simple, and even worse some open source fan will probably create an open source taxi-like application that is free and that uses bitcoin instead of credit cards to make payments.

Kaiser Sousa's picture

cant wait for this phony ass Ibubble to bust...

next...fucking housing in the Fake Area.....

venturen's picture

Going to love seeing California run out of money as tech implodes

homebody's picture

Thin air may not prove to be as valuable as many thought.  Just like advertising on twater will pay off - not.

Consuelo's picture

"Nothing focuses the mind more than either the lure of riches or, the loss of them"

 

Wrong.

Hunger.   The physical sort.