The tech recession of 2022

David Peterson
Angular Ventures
Published in
3 min readNov 28, 2022

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“tech recession in the style of matisse” DALL-E

I can’t help but feel like we’re witnessing the end of an era.

The US economy, on the surface, seems to be steady. Record low unemployment, strong consumption growth. But the tech economy is undoubtedly in a recession. Over 130K tech workers have been laid off so far, with deeper cuts looming. And a who’s who of web 2.0 darlings are down 50–90% in 2022 alone. The markets have spared no one, whether from social media (Snap, Meta), SaaS (Twilio, Asana, DocuSign, Zoom), consumer (Spotify, DoorDash, Lyft) or eCommerce (Shopify). The grim reaper is knocking, and he’s specifically targeting all the companies that most represented growth and innovation over the past 15 years.

Will the next five years in tech look more like the Dot Com crash or the Great Recession? I don’t know. But I think we can all agree that the tech sector is probably not going to be booming again anytime soon.

Now, this blow up isn’t too surprising. The immediate causes are obvious. The pandemic ended, and the companies that benefited most from that stay-at-home, remote-work fever dream (e.g. Zoom, Shopify, Peloton) are suffering. Inflation spiked and interest rates are going up, so capital is getting more scarce. It’s no surprise that high-growth sectors, like tech, would suffer more than others in an environment like this.

But I wonder if there are some broader trends at play that led us to this point. Here are two that come to mind:

Network effects were weaker than they appeared. Billions of dollars were invested in companies on the premise that the network effects that made Facebook so sticky could be replicated across other industries. But it’s clear now that many of these network effects were weaker than they first appeared. Uber’s network effects are almost nonexistent — both drivers and consumers frequently use multiple ride-hailing apps simultaneously. Netflix argued that there were “winner-take-all” dynamics in content production as well, but their distribution and data advantage haven’t proven to be nearly as durable as they first argued.

Most point solutions didn’t become platforms. As I’ve written before, for the past decade, conventional startup wisdom has been to focus. Find a narrow problem, solve it and you’ll be rewarded. And for the past decade, that’s been pretty good advice. But I think things have gone a bit too far. Investors poured money into point solutions on the dream that they’d be wedges into platforms. But vanishingly few point solutions made the leap to becoming true product suites that provide differentiated, comprehensive solutions. That was fine when companies were willing to spend for “best of breed,” either because they were swimming in VC dollars or because they were willing to do whatever it took to grow a bit faster, but what about now? How will these point solutions fare over the next few years, when faced with procurement teams tasked with recession-inspired belt-tightening? I can’t help but think that we’ll look back on the 2010s as an era when every point solution got funded, despite not having a clear plan to ever achieve a sustainable business in a normal interest rate environment.

So if this is the end, what’s next?

Just as a pendulum seems to stop in mid air as it reaches its apex, many of the large platforms of the web 2.0 era have felt stagnant for awhile now. When is the last time you excitedly bought a new iPhone? Or even noticed (let alone benefited from) an updated feature in the Google suite?

But the reality is, I think the pendulum is swinging back, and beginning to accelerate. There are many revolutions ahead of us. For all this talk of no/low-code, these computers we use every day are still nothing more than black boxes to the vast majority of people. When will the true power of computing finally be put in the hands of the average person? The sudden affordability of genomic sequencing, space launches, solar electricity…all of these portend the formation of new, massive venture-scale businesses. We’re just now seeing what LLMs can do. What new business models will AI bring about?

We’re on the cusp of a new era in tech. And I’m feeling quite optimistic.

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