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Bill Gurley
Crunch Network

What The Tech Bubble Means Outside Silicon Valley

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It’s a place, a mindset, a nickname, a metonym, an innovation hub, a TV show and a standard against which all cradles of technology are measured. Silicon Valley prides itself on having a meta-status that defies easy categorization, but this cannot save it from the impending bubble. According to investors like Mark Cuban, Chris Sacca, Bill Gurley, Manish Goyal and Bharat Ramnani, there’s no longer doubt about the existence of a bubble — it’s just a matter of when it will burst and how bad the carnage will be.

So far, the tech bubble discussion has been as self-referential as Silicon Valley. It revolves around the 117 ‘Unicorns’ on which investors have staked billions. Whether all the folly is driven by “FOMO” (fear of missing out), as Gurley puts it, or “hubris or bad decision making or naiveté about consequences,” according to Sacca, the bubble goes way beyond 117 companies, one valley and the anxiety of its investors.

Should it burst, the tech bubble will have ramifications that ripple around the tech world like the shockwave from an apocalyptic asteroid. Most tech hubs are not self-sufficient at all; the fact that they are always referred to as the “Silicon Valley of [insert country]” should be a tipoff that they are merely branches off the trunk that is Silicon Valley. Even prolific hubs like Israel, China and India depend on Silicon Valley to pump capital through their arteries.

For us outsiders in the “rest of the world,” the importance of Silicon Valley is not just its wealth of investors, high-tech companies and talent. The value is not just the billions of dollars that flow so freely that the writers of HBO’s Silicon Valley, no matter how many people they asked, couldn’t find a reason why a company like Pied Piper wouldn’t get $10 to $15 million in funding.

No, the real value is faith and trust. Silicon Valley is a broker of credibility. It’s not as if here, in Dubai, there is any lack of capital. It’s just that no one here would dare to put significant funds into a tech startup early in the game unless it had Silicon Valley’s stamp of approval.

Let me give you a real example of this. Earlier this year, my company Fetchr received a valuation from U.S. investors that was six times greater than what a top-notch investor in Dubai had suggested. Raising capital from Dubai-based investors wouldn’t have been worth it.

In local business culture, some investors believe that if a startup needs to bring in capital, the founder must not have the capacity and knowledge to grow the company. Fundraising is a sign of weakness. I have seen local investors refuse to carve out stock options and insist that new hires will have to take a cut from the founder’s share pool.

However, after New Enterprise Associates (NEA) and other American VC firms committed to us in the round, investors in the UAE believed in the potential of the company. The gleam of Silicon Valley became a beacon for customers and capital on our own turf. The credibility we gained was at least as valuable as the actual capital.

Should it burst, the tech bubble will have ramifications that ripple around the tech world like the shockwave from an apocalyptic asteroid.

This is what makes the bubble especially terrifying outside Silicon Valley. Thousands of miles away, across multiple time zones and cultural fault lines, Silicon Valley’s errors could sweep us away in a tide of doubt as American investors recoil from foreign tech. Without the flow of outside capital and credibility, Dubai’s fledgling tech community would be set back 30 years.

I don’t mean to downplay the consequences of the bubble in the U.S. — it will be painful — but I do think innovation will bounce back relatively quickly, just as it did after the Dot-com Bubble. Silicon Valley has a formidable culture of innovation that will not go away, even if many startups go bust. In more fragile economies, the bubble’s ramifications could be harsher and longer lasting, despite the emergence of local VC industries.

Consider Spain, a country where unemployment is at 23.78 percent across age groups and a staggering 49.30 percent for people under 25 years old. The small but growing tech scene is an area where youth can effectively create their own jobs, presuming they have access to capital. Indeed, Spain saw more than $300 million worth of IT investments in 2014, up 30 percent over 2013, according to Venture Watch Research.

Here’s the catch: 32.6 percent of the total investment volume came from the United States, and another 26.3 percent came from outside the country. Between January and March 2015, 51.3 percent of volume came from the U.S. alone, and just 17.3 percent came from Spain.

How does a tech community like Spain’s continue to thrive if the bubble bursts and U.S. investors pull the plug? Joining half of Spain’s youth in unemployment won’t be an appealing option for the tech-savvy individuals denied any hope of becoming entrepreneurs on the Iberian Peninsula.

Many will end up clocking in and out at big European companies where “innovation” is a joke. Many will leave Spain, robbing the country of talent and future companies that would provide jobs, training, mentorship and sustainable economic value.

Spain’s $300 million in funding is miniscule compared to the $48 billion that venture firms shelled out on American companies in 2014 (by comparison, the global volume of VC activity was $86 billion). Spain is certainly not the only foreign tech hub that depends on U.S. venture capital. Consider that in 2014, 239 out of 308 venture funds were based in North America, according to research firm PitchBook.

Which leads to the great unknown: If the bubble cuts off the flow of capital, what would be the wider impact on emerging tech hubs like Spain, Nigeria and even Greece, where there is already a volatile cocktail of unemployment and political tension? Would the wounded tech community thrown its support behind more radicalized political parties? Would “brain drain” from these countries put local tech innovation into a coma? Would the collapse of tech take down other verticals?

Silicon Valley is the center of innovation because it pumps fresh capital — and fresh credibility — throughout the global tech ecosystem. A Silicon Valley startup is an everyday, blasé thing; a startup in places like Dubai is outlandish and unsettling, at least until Silicon Valley investors knight it. I run a startup in Dubai that only became possible through the credibility bestowed on us by top-tier American VCs.

I can’t tell you the exact repercussions of a bubble. But I know as an entrepreneur who lives somewhere in the “rest of the world,” this is about more than 117 Unicorns and one valley. If the bubble bursts, whether it’s caused by hubris, ignorance or unseen forces, the global tech community will share in the pain.