Illustration: Rebecca Zisser/Axios

Wall Street's two-day-old coronavirus crash is a wakeup alarm for Silicon Valley.

The big picture: Tech has been booming for so long the industry barely remembers what a down market feels like — and most companies are ill-prepared for one.

Background: The tech industry's last real experience of financial adversity was a generation ago, when the dotcom bust leveled the tech sector.

  • The recession of 2001 hit Silicon Valley extra hard, while the Great Recession of 2007-2009 left it relatively unscathed.
  • "RIP Good Times," an infamous presentation by Sequoia Capital in 2008, tried to warn tech of a coming downturn that barely materialized — and the following decade turned into a unicorn-breeding, billionaire-minting, IPO-launching Gilded Age for the industry.
  • Today, most startups and many well-established firms are led and staffed by people who have no first-hand experience of the brutal logic of industry shrinkage.

Veterans of the dotcom collapse 20 years ago recall how it played out then.

Winners:

  • ROI (return on investment) and cash revenue: Companies that don't rely on borrowed money or equity financing are in a much better position to keep the lights on.
  • B2B (business-to-business): services and products with other businesses as their customers tend to fare better than companies that serve consumer markets.
  • M&A (mergers and acquisitions): The lawyers and financiers who help growing companies buy out their competitors also make out like bandits in a downturn, when failing companies need to consolidate.

Losers:

  • Advertising and media: Marketing budgets are easy to cut fast, and media outfits dependent on those budgets feel the pain the fastest.
  • Employee activism: Layoffs spread fear among workers, job mobility and openings evaporate, companies feel less need to keep their employees happy — leaving workers without the security they need to speak out.
  • Diversity and inclusion efforts: While experts say a diverse workforce is good for the bottom line, recruiting and retention efforts require investments that often get pinched in lean times.
  • Idealistic mission statements: "Changing the world" gets swapped out very quickly for "Staying alive."

A coronavirus-triggered recession could affect tech in unexpected ways.

  • The industry is highly dependent on international collaboration, cross-border supply chains and global consumer demand, all of which are threatened by the prospect of a pandemic.
  • But a shelter-in-place mentality could prove a boon to videoconferencing, e-commerce, and other tech-driven trends that let lives go on with less direct human contact.

A market retreat could also reshape the inside-the-Beltway critique of Big Tech.

  • Arguments for tough new regulations based on the industry's power might look different in a world where tech giants' stock had been battered and their spending cut, on everything from lobbying to acquisitions.
  • 20 years ago, a new wave of companies (including Google, founded 1998, Salesforce, founded 1999, and Facebook, founded 2004) germinated while the giants of the era froze in place or withered.
  • The big question today is whether a downturn would clear space for a new generation of startups to blossom, or just leave today's giants more deeply entrenched.

Yes, but: Two days of 3-percent-plus losses in the market don't constitute a downturn, or even, in technical terms, a market "correction" (which is defined as a 10 percent drop).

  • Markets took a dive in late 2018 on recession fears, only to come roaring back.
  • Today's financial world is still awash in cash, which could provide a calming buffer. The venture capital world is still looking to invest huge amounts: Per Pitchbook, funds raised a record $88.3 billion and $75.5 billion in 2018 and 2019, respectively. 
  • In some cases, smaller companies started laying people off even before this market drop, so they might be able to weather it more easily.

The bottom line: This week's precipitous drops remind everyone in tech that graph-lines don't alway move up as they move to the right. The alarm might wake the Valley — but the industry could also just hit "snooze."

Go deeper:

Go deeper

Updated 2 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Aïda Amer/Axios

  1. Global: Total confirmed cases as of 6 p.m. ET: 13,203,571 — Total deaths: 575,201 — Total recoveries — 7,331,068Map.
  2. U.S.: Total confirmed cases as of 6 p.m. ET: 3,407,798 — Total deaths: 136,252 — Total recoveries: 1,031,939 — Total tested: 41,004,275Map.
  3. Politics: Biden welcomes Trump wearing mask in public but warns "it’s not enough"
  4. Public health: Four former CDC heads say Trump's undermining of agency puts lives at risk — CDC director: U.S. could get coronavirus "under control" in 4–8 weeks if all wear masks.

Bank CEOs brace for worsening economic scenario

JPMorgan CEO Jamie Dimon. Photo: J. Lawler Duggan/For The Washington Post via Getty Images

Wells Fargo swung to its first loss since the financial crisis — while JPMorgan Chase and Citigroup reported significantly lower profits from a year earlier — as the banks set aside billions of dollars more in the second quarter for loans that may go bad.

Why it matters: The cumulative $28 billion in loan loss provisions that banks have so far announced they’re reserving serves as a signal they’re preparing for a colossal wave of loan defaults as the economy slogs through a coronavirus-driven downturn.

2 hours ago - Health

Moderna's vaccine spurred immune system response to coronavirus

Moderna's stock rose 16% after hours on this news. Photo: Jakub Porzycki/NurPhoto via Getty Images

Healthy volunteers who took Moderna's coronavirus vaccine candidate appeared to generate an immune system response to the virus, and there were "no trial-limiting safety concerns," according to a new study published in the New England Journal of Medicine.

Why it matters: The phase one trial is still small and does not definitively determine how effective the vaccine is. But Anthony Fauci of the National Institutes of Health, which is running the trial, told the Wall Street Journal that these data make it "pretty clear that this vaccine is capable of inducing quite good [levels] of neutralizing antibodies."