When you look at the startling increase in dollars being pumped into seed start ups as compared to the rest of the bay area economy, you know we have a bubble.
Start up office space has grown 12% CAGR and Start up salaries have increased 15% CAGR over the last five years. Just to make this real for those of us who still earn the bulk of our money from our salaries, in 2009 a start up was paying 90k a year and in 2014 a startup would be paying north of 170k.
If these increases were driven by customers buying products, this would be a good thing. Except it’s not. These increases are driven by an increase in funding levels. Essentially more VC’s are being given more money to put more money into more start ups.
Given that these price increases are sustained by increased funding levels not increased revenue levels, this will end in tears.
The funding spigot will end at some point in time. And when it does we will have three corrections
- A sudden and dramatic collapse in employment as start ups get vaporized.
- A sudden and dramatic collapse in salaries as more people chase suddenly fewer jobs. The jobs they had will disappear and the new companies that start up will hire at rates that are more like 2009
- A sudden and dramatic collapse in office real-estate
The only good news is that traffic will get better for folks who are able to stick around…