Startup bubble fueled by Fed’s cheap money policy finally burst in 2023

Published

2 years ago

December 29, 2023

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Scooters take over SXSW in Austin, TX

As the last decade came to an end, it was easy for a young engineer to hop on a Bird scooter and ride it to a nearby WeWork office, home to the hottest new crypto startup.

Then came Covid. Electric scooters and coworking spaces were no longer important, but there was a sudden need for tools to enable remote collaboration. Money started flowing into entertainment and education apps that consumers could tap while in lockdown. And while trading crypto.

In both periods, money was cheap and plentiful. The Federal Reserve’s near-zero interest rate policy had been in effect since after the 2008 financial crisis, and Covid stimulus efforts added fuel to the fire, incentivizing investors to take risks, betting on the next big innovation. And crypto.

This year, it all unwound. With the Fed lifting its benchmark rate to the highest in 22 years and persistent inflation leading consumers to pull back and businesses to focus on efficiency, the cheap money bubble burst. Venture investors continued retreating from record levels of financing reached in 2021, forcing cash-burning startups to straighten out or go bust. For many companies, there was no workable solution.

WeWork and Bird filed for bankruptcy. High-valued Covid plays like videoconferencing startup Hopin and social audio company Clubhouse faded into oblivion. And crypto entrepreneur Sam Bankman-Fried, founder of failed crypto exchange FTX, was convicted of fraud charges that could put him behind bars for life.

Last week, Trevor Milton, founder of automaker Nikola, was sentenced to four years in prison for fraud. His company had raised bundles of cash and rocketed past a $30 billion valuation on the promise of bringing hydrogen-powered vehicles to the mass market. December also saw the demise of Hyperloop One, which reeled in hundreds of millions of dollars to build tubular transportation that would shoot passengers and cargo at airline speeds in low-pressure environments.

There is surely more pain to come in 2024, as cash continues to dry up for unsustainable businesses. But venture capitalists like Jeff Richards of GGV Capital see an end in sight, recognizing that the zero interest rate policy (ZIRP) days are squarely in the past and good companies are performing.

“Prediction: 2024 is the year we finally bury the class of ’21 ZIRP ‘unicorns’ and start talking about a new crop of great companies,” Richards wrote in a post on X, formerly Twitter, on Dec. 25. “Never overvalued, well run, consistently strong growth and great cultures. IPO class of ’25 coming your way.” He concluded with two emojis — one of a smiling face and the other of crossed fingers.

The 'Magnificent Seven' has more fuel in the tank for 2024, says Morgan Stanley's Andrew Slimmon

Investors are clearly excited about tech. Following a 33% plunge in 2022, the Nasdaq Composite has jumped 44% this year as of Wednesday’s close, putting the tech-heavy index on pace to close out its strongest year since 2003, which marked the rebound from the dot-com bust.

Chipmaker Nvidia more than tripled in value this year as cloud companies and artificial intelligence startups snapped up the company’s processors needed to train and run advanced AI models. Facebook parent Meta jumped almost 200%, bouncing back from a brutal 2022, thanks to hefty cost cuts and its own investments in AI.

The 2023 washout occurred in parts of the tech economy where profits were never part of the equation. In hindsight, the reckoning was predictable.

Between 2004 and 2008, venture investments in the U.S. averaged around $30 billion annually, according to data from the National Venture Capital Association. When the Fed pulled rates close to zero, big money managers lost the opportunity to get returns in fixed income, and technology drove massive growth in the global economy and a sustained bull market in equities.

Investors, hungry for yield, poured into the riskiest areas of tech. From 2015 to 2019, VCs invested an average of $111.2 billion annually in the U.S., setting records almost every year. The mania reached a zenith in 2021, when VCs plunged more than $345 billion into tech startups — more than the total amount they invested between 2004 and 2011.

Too much money, not enough profit

WeWork’s spiral into bankruptcy was a long time in the making. The provider of coworking space raised billions from SoftBank at a peak valuation of $47 billion but was blasted when it first tried to go public in 2019. Investors balked at the more than $900 million in losses the company had racked up in the first half of the year and were skeptical of related-party transactions involving CEO Adam Neumann.

WeWork ultimately debuted — without Neumann, who stepped down in September 2019 — via a special purpose acquisition company in 2021. Yet a combination of rising interest rates and sluggish return-to-office trends depressed WeWork’s financials and stock price.

Adam Neumann of WeWork and Victor Fung Kwok-king, right, chairman of Fung Group, attend a signing ceremony at WeWork’s Weihai Road location on April 12, 2018 in Shanghai, China.

Jackal Pan | Visual China Group | Getty Images

In August, WeWork said in a securities filing that there was a “going concern” about its ability to remain viable, and in November the company filed for bankruptcy. CEO David Tolley has laid out a plan to exit many of the expensive leases signed in WeWork’s heyday.

Bird’s path to bankruptcy followed a similar trajectory, though the scooter company maxed out at a much lower private market valuation of $2.5 billion. Founded by former Uber exec Travis VanderZanden, Bird went public through a SPAC in November 2021, and quickly fell below its initial price.

Far from its meteoric growth days of 2018, when it announced it had reached 10 million rides in a year, Bird’s model fell apart when investors stopped pumping in cash to subsidize cheap trips for consumers.

In September, the company was delisted from the New York Stock Exchange and began to trade over the counter. Bird filed for Chapter 11 bankruptcy protection earlier this month and said it will use the bankruptcy proceeding to facilitate a sale of its assets, which it expects to complete within the next 90 to 120 days.

While the onset of the Covid pandemic in 2020 was a shock to businesses like WeWork and Bird, a whole new class of companies flourished — for a short time at least. Alongside the booming stock prices for Zoom, Netflix and Peloton, startup investors wanted in on the action.

Virtual event planning platform Hopin, founded in 2019, saw its valuation increase from $1.5 billion in December 2020 to $7.75 billion by August 2021. Meanwhile, Andreessen Horowitz touted Clubhouse as the go-to app for hosting virtual sessions featuring celebrities and influencers, a novel idea when nobody was getting together in person. The firm led an investment in Clubhouse at a $4 billion valuation in the early part of 2021.

But Clubhouse never turned into a business. User growth plateaued quickly. In April 2023, Clubhouse said it was laying off half its staff in order to “reset” the company.

“As the world has opened up post-Covid, it’s become harder for many people to find their friends on Clubhouse and to fit long conversations into their daily lives,” co-founders Paul Davison and Rohan Seth wrote in a blog post.

Hopin was equally dependent on people remaining at home attached to their devices. Hopin founder Johnny Boufarhat told CNBC in mid-2021 that the company would go public in two to four years. Instead, its events and engagement businesses were swallowed up by RingCentral in August for up to $50 million.

For some of the latest high-profile failures, the problems stemmed from the tech industry’s blind faith in the innovative founder.

FTX collapsed almost overnight in late 2022 as customers of the crypto exchange demanded withdrawals, which were unavailable because of how Bankman-Fried was using their money. Bankman-Fried’s white knight veneer had gone largely unscrutinized, because big-name investors like Sequoia Capital, Insight Partners and Tiger Global pumped in money without getting any sort of board presence in return.

Nikola’s Milton had dazzled investors and the press, taking on an ambitious effort to transform how cars run in a way that other automakers had tried and failed to do in the past. In June 2020, three years after its founding, the company went public via a SPAC.

Three months after its public market debut, Nikola announced a strategic partnership with General Motors that valued the company at more than $18 billion, which was well below its peak in June.

Within days of the GM deal, short seller firm Hindenburg Research released a scathing report, declaring that Milton was spouting an “ocean of lies.”

“We have never seen this level of deception at a public company, especially of this size,” Hindenburg wrote.

Milton resigned 10 days after the report, by which time concurrent Justice Department and Securities and Exchange Commission probes were underway. Nikola settled with the SEC in December 2021. A week before Christmas of this year, Milton was sentenced to prison for fraud.

Virgin Hyperloop One built the world’s first working, full-sized hyperloop test in Nevada. It ran last year for a little less than a third of a mile, and accelerated a 28-foot pod to 192 miles per hour in a few seconds.

Source: Virgin Hyperloop

‘Growing from lessons learned’

Hyperloop One is another far-out idea that never made it to fruition.

The company, originally called Virgin Hyperloop, raised more than $450 million from its inception in 2014 until its closure this month. Investors included Sir Richard Branson’s Virgin Group, Russia’s sovereign wealth fund and Khosla Ventures.

But Hyperloop One was unable to secure contracts that could take it beyond a test site in Las Vegas, adding to years of struggles that involved allegations of executive misconduct. Bloomberg reported the company is selling off assets and laying off the remaining staff members.

Even for the segments of emerging technology that are still flourishing, the capital markets are challenging outside of AI. Hardly any tech companies have gone public in the past two years following record years in 2020 and 2021.

The few tech IPOs that took place this year stirred up little enthusiasm. Grocery delivery company Instacart went public in September at $42 a share after dramatically slashing its valuation. The stock has since lost more than 40% of its value, closing Wednesday at $23.93.

Masayoshi Son’s SoftBank, which was the principal investor in WeWork and a number of other companies that failed in the past couple years, took chip designer Arm Holdings public in September at a $60 billion valuation. The offering provided some much-needed liquidity for SoftBank, which had acquired Arm for $32 billion in 2016.

Arm has done better than Instacart, with its stock climbing 46% since the initial public offering to close at $74.25 on Wednesday.

Many bankers and tech investors are pointing to the second half of 2024 as the earliest opportunity for the IPO window to reopen in a significant way. By that point, companies will have had more than two years to adapt to a changed environment for tech businesses, with a focus on profit above growth, and may also get a boost from expected Fed rate cuts in the new year.

For some founders, the market never closed. After exiting WeWork, where he’d been propped up by billions of dollars in SoftBank cash in a decision that Son later called “foolish,” Adam Neumann is back at it. He raised $350 million last year from Andreesen Horowitz to launch a company called Flow, which says it wants to create a “superior living environment” by acquiring multifamily properties across the U.S.

Neumann’s WeWork experience isn’t proving to be a liability. Rather, it drove Andreessen’s investment.

“We understand how difficult it is to build something like this,” Andreessen wrote in a blog post about the deal. “And we love seeing repeat-founders build on past successes by growing from lessons learned.”

WATCH: WeWork’s end, Neumann’s return?

WeWork's end, Neumann's return? Who's left holding the bag, and what comes next

Technology

Apple scores big victory with ‘F1,’ but AI is still a major problem in Cupertino

Published

13 hours ago

July 4, 2025

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Apple scores big victory with 'F1,' but AI is still a major problem in Cupertino

Formula One F1 – United States Grand Prix – Circuit of the Americas, Austin, Texas, U.S. – October 23, 2022 Tim Cook waves the chequered flag to the race winner Red Bull’s Max Verstappen

Mike Segar | Reuters

Apple had two major launches last month. They couldn’t have been more different.

First, Apple revealed some of the artificial intelligence advancements it had been working on in the past year when it released developer versions of its operating systems to muted applause at its annual developer’s conference, WWDC. Then, at the end of the month, Apple hit the red carpet as its first true blockbuster movie, “F1,” debuted to over $155 million — and glowing reviews — in its first weekend.

While “F1” was a victory lap for Apple, highlighting the strength of its long-term outlook, the growth of its services business and its ability to tap into culture, Wall Street’s reaction to the company’s AI announcements at WWDC suggest there’s some trouble underneath the hood.

“F1” showed Apple at its best — in particular, its ability to invest in new, long-term projects. When Apple TV+ launched in 2019, it had only a handful of original shows and one movie, a film festival darling called “Hala” that didn’t even share its box office revenue.

Despite Apple TV+ being written off as a costly side-project, Apple stuck with its plan over the years, expanding its staff and operation in Culver City, California. That allowed the company to build up Hollywood connections, especially for TV shows, and build an entertainment track record. Now, an Apple Original can lead the box office on a summer weekend, the prime season for blockbuster films.

The success of “F1” also highlights Apple’s significant marketing machine and ability to get big-name talent to appear with its leadership. Apple pulled out all the stops to market the movie, including using its Wallet app to send a push notification with a discount for tickets to the film. To promote “F1,” Cook appeared with movie star Brad Pitt at an Apple store in New York and posted a video with actual F1 racer Lewis Hamilton, who was one of the film’s producers.

(L-R) Brad Pitt, Lewis Hamilton, Tim Cook, and Damson Idris attend the World Premiere of “F1: The Movie” in Times Square on June 16, 2025 in New York City.

Jamie Mccarthy | Getty Images Entertainment | Getty Images

Although Apple services chief Eddy Cue said in a recent interview that Apple needs the its film business to be profitable to “continue to do great things,” “F1” isn’t just about the bottom line for the company.

Apple’s Hollywood productions are perhaps the most prominent face of the company’s services business, a profit engine that has been an investor favorite since the iPhone maker started highlighting the division in 2016.

Films will only ever be a small fraction of the services unit, which also includes payments, iCloud subscriptions, magazine bundles, Apple Music, game bundles, warranties, fees related to digital payments and ad sales. Plus, even the biggest box office smashes would be small on Apple’s scale — the company does over $1 billion in sales on average every day.

But movies are the only services component that can get celebrities like Pitt or George Clooney to appear next to an Apple logo — and the success of “F1” means that Apple could do more big popcorn films in the future.

“Nothing breeds success or inspires future investment like a current success,” said Comscore senior media analyst Paul Dergarabedian.

But if “F1” is a sign that Apple’s services business is in full throttle, the company’s AI struggles are a “check engine” light that won’t turn off.

Replacing Siri’s engine

At WWDC last month, Wall Street was eager to hear about the company’s plans for Apple Intelligence, its suite of AI features that it first revealed in 2024. Apple Intelligence, which is a key tenet of the company’s hardware products, had a rollout marred by delays and underwhelming features.

Apple spent most of WWDC going over smaller machine learning features, but did not reveal what investors and consumers increasingly want: A sophisticated Siri that can converse fluidly and get stuff done, like making a restaurant reservation. In the age of OpenAI’s ChatGPT, Anthropic’s Claude and Google’s Gemini, the expectation of AI assistants among consumers is growing beyond “Siri, how’s the weather?”

The company had previewed a significantly improved Siri in the summer of 2024, but earlier this year, those features were delayed to sometime in 2026. At WWDC, Apple didn’t offer any updates about the improved Siri beyond that the company was “continuing its work to deliver” the features in the “coming year.” Some observers reduced their expectations for Apple’s AI after the conference.

“Current expectations for Apple Intelligence to kickstart a super upgrade cycle are too high, in our view,” wrote Jefferies analysts this week.

Siri should be an example of how Apple’s ability to improve products and projects over the long-term makes it tough to compete with.

It beat nearly every other voice assistant to market when it first debuted on iPhones in 2011. Fourteen years later, Siri remains essentially the same one-off, rigid, question-and-answer system that struggles with open-ended questions and dates, even after the invention in recent years of sophisticated voice bots based on generative AI technology that can hold a conversation.

Apple’s strongest rivals, including Android parent Google, have done way more to integrate sophisticated AI assistants into their devices than Apple has. And Google doesn’t have the same reflex against collecting data and cloud processing as privacy-obsessed Apple.

Some analysts have said they believe Apple has a few years before the company’s lack of competitive AI features will start to show up in device sales, given the company’s large installed base and high customer loyalty. But Apple can’t get lapped before it re-enters the race, and its former design guru Jony Ive is now working on new hardware with OpenAI, ramping up the pressure in Cupertino.

“The three-year problem, which is within an investment time frame, is that Android is racing ahead,” Needham senior internet analyst Laura Martin said on CNBC this week.

Apple’s services success with projects like “F1” is an example of what the company can do when it sets clear goals in public and then executes them over extended time-frames.

Its AI strategy could use a similar long-term plan, as customers and investors wonder when Apple will fully embrace the technology that has captivated Silicon Valley.

Wall Street’s anxiety over Apple’s AI struggles was evident this week after Bloomberg reported that Apple was considering replacing Siri’s engine with Anthropic or OpenAI’s technology, as opposed to its own foundation models.

The move, if it were to happen, would contradict one of Apple’s most important strategies in the Cook era: Apple wants to own its core technologies, like the touchscreen, processor, modem and maps software, not buy them from suppliers.

Using external technology would be an admission that Apple Foundation Models aren’t good enough yet for what the company wants to do with Siri.

“They’ve fallen farther and farther behind, and they need to supercharge their generative AI efforts” Martin said. “They can’t do that internally.”

Apple might even pay billions for the use of Anthropic’s AI software, according to the Bloomberg report. If Apple were to pay for AI, it would be a reversal from current services deals, like the search deal with Alphabet where the Cupertino company gets paid $20 billion per year to push iPhone traffic to Google Search.

The company didn’t confirm the report and declined comment, but Wall Street welcomed the report and Apple shares rose.

In the world of AI in Silicon Valley, signing bonuses for the kinds of engineers that can develop new models can range up to $100 million, according to OpenAI CEO Sam Altman.

“I can’t see Apple doing that,” Martin said.

Earlier this week, Meta CEO Mark Zuckerberg sent a memo bragging about hiring 11 AI experts from companies such as OpenAI, Anthropic, and Google’s DeepMind. That came after Zuckerberg hired Scale AI CEO Alexandr Wang to lead a new AI division as part of a $14.3 billion deal.

Meta’s not the only company to spend hundreds of millions on AI celebrities to get them in the building. Google spent big to hire away the founders of Character.AI, Microsoft got its AI leader by striking a deal with Inflection and Amazon hired the executive team of Adept to bulk up its AI roster.

Apple, on the other hand, hasn’t announced any big AI hires in recent years. While Cook rubs shoulders with Pitt, the actual race may be passing Apple by.

WATCH: Jefferies upgrades Apple to ‘Hold’

Technology

Musk backs Sen. Paul’s criticism of Trump’s megabill in first comment since it passed

Published

13 hours ago

July 4, 2025

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Musk backs Sen. Paul's criticism of Trump's megabill in first comment since it passed

Tesla CEO Elon Musk speaks alongside U.S. President Donald Trump to reporters in the Oval Office of the White House on May 30, 2025 in Washington, DC.

Kevin Dietsch | Getty Images

Tesla CEO Elon Musk, who bombarded President Donald Trump‘s signature spending bill for weeks, on Friday made his first comments since the legislation passed.

Musk backed a post on X by Sen. Rand Paul, R-Ky., who said the bill’s budget “explodes the deficit” and continues a pattern of “short-term politicking over long-term sustainability.”

The House of Representatives narrowly passed the One Big Beautiful Bill Act on Thursday, sending it to Trump to sign into law.

Paul and Musk have been vocal opponents of Trump’s tax and spending bill, and repeatedly called out the potential for the spending package to increase the national debt.

On Monday, Musk called it the “DEBT SLAVERY bill.”

The independent Congressional Budget Office has said the bill could add $3.4 trillion to the $36.2 trillion of U.S. debt over the next decade. The White House has labeled the agency as “partisan” and continuously refuted the CBO’s estimates.

Microsoft layoffs hit 830 workers in home state of Washington

Published

1 day ago

July 3, 2025

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Microsoft layoffs hit 830 workers in home state of Washington

Microsoft CEO Satya Nadella speaks at the Axel Springer building in Berlin on Oct. 17, 2023. He received the annual Axel Springer Award.

Ben Kriemann | Getty Images

Among the thousands of Microsoft employees who lost their jobs in the cutbacks announced this week were 830 staffers in the company’s home state of Washington.

Nearly a dozen game design workers in the state were part of the layoffs, along with three audio designers, two mechanical engineers, one optical engineer and one lab technician, according to a document Microsoft submitted to Washington employment officials.

There were also five individual contributors and one manager at the Microsoft Research division in the cuts, as well as 10 lawyers and six hardware engineers, the document shows.

Microsoft announced plans on Wednesday to eliminate 9,000 jobs, as part of an effort to eliminate redundancy and to encourage employees to focus on more meaningful work by adopting new technologies, a person familiar with the matter told CNBC. The person asked not to be named while discussing private matters.

Scores of Microsoft salespeople and video game developers have since come forward on social media to announce their departure. In April, Microsoft said revenue from Xbox content and services grew 8%, trailing overall growth of 13%.

In sales, the company parted ways with 16 customer success account management staff members based in Washington, 28 in sales strategy enablement and another five in sales compensation. One Washington-based government affairs worker was also laid off.

Microsoft eliminated 17 jobs in cloud solution architecture in the state, according to the document. The company’s fastest revenue growth comes from Azure and other cloud services that customers buy based on usage.

CEO Satya Nadella has not publicly commented on the layoffs, and Microsoft didn’t immediately provide a comment about the cuts in Washington. On a conference call with analysts in April, Microsoft CFO Amy Hood said the company had a “focus on cost efficiencies” during the March quarter.

WATCH: Microsoft layoffs not performance-based, largely targeting middle managers