The Upside of a Downturn in Silicon Valley

Over the last year, as money flowing into Silicon Valley went from a gush to a flood, Mr. Botha, like other venture investors, began advising start-ups to raise funds even if they didn’t need them immediately, to have cash on hand for a potential downturn. The companies that did so will have a leg up, because a downturn offers a few immediate advantage for well-positioned start-ups: It lowers prices and wreaks havoc on more vulnerable competitors. Salaries for software engineers could fall, and they could become easier to recruit. The price of office space could go down. Other less tangible costs — Bay Area traffic, marketing, employees’ overall cost of living — could also decline significantly.

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