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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

Acting Capitol Police chief: Phone logs show Jan. 6 National Guard approval was delayed

Pittman at a congressional tribute for fallen officer Brian Sicknick. Photo: Erin Schaff-Pool/Getty Images

Acting U.S. Capitol Police chief Yogananda Pittman testified on Thursday that cellphone records show former USCP chief Steven Sund requested National Guard support from the House sergeant-at-arms as early as 12:58pm on Jan. 6, but he did not receive approval until over an hour later.

Why it matters: Sund and former House sergeant-at-arms Paul Irving clashed at a Senate hearing on Tuesday over a dispute in the timeline for when Capitol Police requested the National Guard during the Capitol insurrection.

Manhattan prosecutors reportedly obtain millions of pages of Trump's tax records

Photo: Al Drago/Bloomberg via Getty Images

The Manhattan district attorney is now in possession of millions of pages of former President Trump's tax and financial records, CNN first reported, following a Supreme Court ruling that allowed prosecutors to enforce a subpoena after a lengthy legal battle.

Why it matters: Trump fought for years to keep his tax returns out of the public eye and away from prosecutors in New York, who are examining his business in a criminal investigation that was first sparked by hush-money payments made by Trump's former fixer Michael Cohen during the 2016 election.

Dion Rabouin, author of Markets
3 hours ago - Economy & Business

The digital dollar is now high priority for the Fed

Illustration: Aïda Amer/Axios

The U.S. is starting to get serious about a central-bank-backed digital currency, with recent comments from top officials laying out the strongest support yet.

Driving the news: On Tuesday Fed chair Jerome Powell told Congress that developing a digital dollar is a "high priority project for us," but added that there are "significant technical and policy questions."