Startups in the tech sector have defied expectations of a “great reckoning.”
Why Investors Were Worried
The fear made sense at the time. Through 2014 and 2015, money poured into private tech companies, and many startups were valued at a billion dollars or more long before they had a clear route to profit. Plenty of them were spending heavily to win customers, subsidizing services with investors’ cash and hoping to make the numbers work later.
By early 2016, a number of well-known investors were warning that this couldn’t last. If funding dried up, the argument went, companies burning cash without a working business model would be the first to go, and the fallout could hit the whole startup world at once.
What actually happened was quieter than a crash. Instead of a wave of collapses, many companies changed how they operated.
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How Startups Responded
Citing Evernote, Zirx, and Bannerman as examples, The New York Times explains how tech startups have largely responded to alarm bells set off by investors, with the following results:
- Many companies have narrowed their focus to the most profitable customers.
- More new enterprises are leveraging artificial intelligence, robotics and virtual reality, “creating potential areas of growth for Silicon Valley technologists to build on next.”
- Elimination of some employee perks. For example, Evernote ditched free housekeeping services.
“The startup world did heed the warnings,” Max Levchin, chief executive of lending startup Affirm, told the NYT. Levchin was a co-founder of PayPal.
The Zirx Pivot
Zirx is a good example of what “narrowing focus” looked like in practice. The company started as an on-demand valet service: you’d tap an app, and someone would come and park your car. That kind of service is expensive to run, because every booking needs a real person on the ground.
In February 2016, Zirx dropped its consumer valet service to focus on business customers, moving, washing and refuelling cars for companies that manage fleets. The company hadn’t shut down. It had simply decided that selling to businesses was a better bet than selling to drivers one at a time.
The pivot stuck. In November 2017, Zirx co-founder Sean Behr relaunched the company as Stratim, a platform for managing car fleets. TechCrunch reported that it had run pilots with 50 companies, including BMW’s DriveNow, General Motors’ Maven, Ford’s Chariot and Toyota.
What Happened Next
The companies in the Times story went on to very different outcomes.
Affirm, the lender Levchin ran, kept growing. Levchin had founded it in 2012, and it became one of the leaders in “buy now, pay later” lending, which lets shoppers split a purchase into installments at checkout. It went public in January 2021. Its shares priced at $49 and closed their first day of trading at $97.24, in what Crunchbase called the first major tech IPO of that year.
Evernote’s path was rockier. The note-taking app, once one of the best-known startups in Silicon Valley, was acquired by Milan-based app developer Bending Spoons, in a deal announced in November 2022. The terms weren’t made public, and TechCrunch called it the end of an era. Evernote CEO Ian Small framed it more hopefully: “For Evernote, this decision is the next strategic step forward on our journey to be an extension of your brain,” he wrote.
The bigger reckoning arguably came later. After the funding boom of 2021, venture investment fell sharply. Crunchbase data shows global startup funding reached $285 billion in 2023, a 38% drop from the $462 billion invested in 2022. One area bucked the trend: funding to AI startups rose in 2023, which fits the Times’ 2016 point that artificial intelligence was where Silicon Valley would build next.
What It Means for Founders
The 2016 lessons are the same ones founders relearned in 2022 and 2023. Know which customers actually make you money, and be willing to drop the ones who don’t, even if they’re the ones who made your product famous. Treat perks as something you can afford, not something you’re entitled to. And don’t plan as if the next round is guaranteed.
None of that is glamorous. But as Zirx showed, a company that changes course early has far more options than one that waits for the money to run out.
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Frequently Asked Questions
What was the great reckoning expected for tech startups in 2016?
Investors had warned that startups spending heavily without a clear path to profit could be hit hard if funding dried up. According to The New York Times, many startups instead responded to the warnings by changing how they operated.
How did startups respond to investor warnings?
The New York Times reported that many startups narrowed their focus to their most profitable customers, built on areas like artificial intelligence, robotics and virtual reality, and cut some perks, such as Evernote's free housekeeping services.
What happened to Zirx?
Zirx dropped its consumer valet parking service in February 2016 to focus on business customers. In November 2017, co-founder Sean Behr relaunched the company as Stratim, a platform for managing car fleets.
How did Affirm's IPO go?
Affirm, the lender led by Max Levchin, went public in January 2021. Its shares priced at $49 and closed their first day of trading at $97.24.
Who bought Evernote?
Evernote agreed to be acquired by Milan-based app developer Bending Spoons in a deal announced in November 2022. The terms weren't made public.