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Newsletter – May 8, 2022

Hi Friends, 

Happy Mother’s Day Weekend! I hope you had the opportunity and privilege to spend time with loved ones this weekend.

In this week’s newsletter, I will talk about the Tech Bear Market and Bad Bunny’s newest album.

Are we entering a Tech Bear Market?

A sector or vertical must fall by 20% to be in a Bear Market. If you look at this year’s performance, the NASDAQ has fallen 22.2%, firmly placing us in a Bear Market. 

Over the last month and a half, tech companies’ fundraising efficacy and stock prices dropped significantly. 

Like many people, I’m down in the market, but my heart breaks for all the layoffs starting to happen. While we focus on numbers and performance, there is a people component to bear markets that tend to begin with:

  • Offers rescinded
  • Layoffs
  • Pre-mature Acquihires or Acquisitions

Notable Layoffs 

You can track the layoffs happening on layoffs.fyi

What does this mean for startups?

There probably aren’t significant changes for companies that have been disciplined in fundraising and spending cash. 

Changes to disciplined companies will come during future fundraising rounds, where metrics and revenue will take precedence in conversations versus other factors. While vision and growth may have been the leading focus earlier, the discussions during the next wave of investment rounds will shift to focusing on revenue, go-to-market strategies, and the path to profitability. 

For companies that aren’t on track to hit these focuses or haven’t been cost-efficient, layoffs and restructuring will be the short-term answer. Tactically, these can be companies that have not found product-market fit yet or those that scaled pre-maturely and have to scale back baed on shaky conditions or assumptions.

Has this happened before?

Yes, the Dot Com Bubble of the 2000s is similar to the situation we’re currently in.

From 2000 to 2001, the Federal Reserve, in a move to protect the economy from the overvalued stock market, made successive interest rate increases. Using the stock market as an unofficial benchmark, a recession would have begun in March 2000 when the NASDAQ crashed following the collapse of the dot-com bubble. – Wikipedia 

If we look at what we have so far

  • Overvalued Stock Market ✅
  • Interest rate hikes ✅
  • Increased rate of Layoffs ✅

What’s next?

Helping those laid off

Tactically, one thing we can do is to rally for those laid off. Tech Twitter is pretty phenomenal in helping connect those affected. If you see a group being laid off and you have open positions in your company, feel free to reference them.

Mentoring people trying to break into tech

With the pandemic and the incoming bear market, fewer junior roles will be posted and made available. People will need more mentorship and coaching when interviewing for fewer open roles. 

Preparing for higher interest rates 📈

Inflation as of March 2022 is at 8.5%. Jerome Powell, the current Federal Reserve Chairman, is committed to bringing down inflation by whatever means necessary. Tactically, interest rates will continue to climb until inflation stabilizes. 

Jerome Powell deeply admires a prior Federal Reserve Chairman, Paul Volcker. Volcker, in the late 70s, “rolled out policies that pushed a key short-term interest rate to nearly 20 percent and sent unemployment soaring to nearly 11 percent in 1981.” – The New York Times. 

In the end, inflation stabilized and so will ours. However, there will be a real-world impact on mortgage payments, especially for those on variable interest rates and those who need to borrow during these subsequent phases of interest rate hikes. 

If you’re interested in listening to this podcast about inflation, I recommend The Daily’s episode on the subject.

Weekend Highlight – Bad Bunny Releases new Album 🎵

Bad Bunny released a new album called Verano Sin Ti. The album is a great listen that I’m going to listen over and over for weeks.

Spotify

Apple Music

My thoughts on the album?

I love the Caribbean influence on the album and it feels very dreamy like Latin American rain. Latin American rain is something that’s hard to explain but you can feel if you’ve visited or stayed there before. The rain feels warm, hot, cold, and cooling at the same time just like the album. I’ve been dreaming a lot about rain recently.

Why do I keep thinking about Latin American rain?

Lately, I’ve been recently dreaming of Latin American rain frequently. My latest dream happened last night.

The rainy season is mainly in the Summer in Latin America versus the Winter like in California. This contrast could be one reason why it’s on my mind. We’re approaching summer.

My first few years of life were in Guatemala, so I feel connected to my birthplace no matter how far away I am from it. We’re in the beginning of May where the peak of the rainy season begins.

Rainfall in Quetzaltenago, Guatemala

There’s something unique about having hot coffee, warm bread, heat from the air, and cold rain hitting the roof. It feels like having coffee in Paris in the rain, but different.

  • rain in Guatemalan market
  • Clouds on Antigua

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