I have gone dark for a while, for reasons I may get into later, but there has been a lot happening in the market, so I wanted to put pen to paper (or fingers to keyboards as the case  may be).

The mood in the tech industry has clearly changed. I have been writing mildly alarming posts for a while now, but it has still taken me by a bit by surprise to see how quickly things have changed. I wish I could pinpoint the moment when this change became clear to me, but there was no single epiphany, merely an accumulation of anecdotes. Everyone just seems to have gotten more cautious.

The Street turned against Tech a while ago. Public market investors can be fickle, so they are not the best gauge of such things. Nonetheless, I like to point out that one of the first posts on this blog was titled “Capital Flows and You”. In that piece, I pointed out that much of the Good Times we enjoyed in the Valley over the past decade was driven by the globally low cost of capital. Interest rates were very low and stock performance was muted, so people with money invest turned put relatively more money into assets that offered better potential returns. A big beneficiary of this was Venture Capital, and as a result it became very easy to get things funded for a long time. I wrote that piece in 2013 and warned that eventually the Federal Reserve would raise interest rates and Venture would start to look less appealing. I was early withthat piece,  but I think it’s safe to say we have turned that corner.

Last year, I started making some predictions about what would happen when the Bubble finally burst. (Can we call it a Bubble now?) In that series of posts (here, here and here) I cautioned that pattern of failure would be hard to predict because the way that many companies are tied together indirectly. Many companies may look healthy but they operate in segments that will fall under pressure as demand dries up. Many other companies will fail because they are propped up by venture dollars and those are drying up. We have seen a few examples of this, but there will be many more to come this year and next.

However, rather than run through those predictions again, I would like to be more constructive and suggest ways to position for the coming downturn.

The obvious one is that private companies need to start paying close attention to cash management. Successful companies, with real prospects, will be able to raise follow-on rounds. At least most of them will. But fund raising rounds are already taking longer to close, and terms are getting tougher.

It is starting to emerge that the dark secret of the past few years of the Bubble is that companies have been raising big rounds on the back of some very ugly terms. I mean who really reads term sheets, let alone actual contracts? Hopefully, you have been reading them, because those terms are going to come into play.  Bill Gurley wrote a post about this a few weeks ago, and he makes it pretty clear that some very big unicorns have put themselves in an ugly position, basically sacrificing terms in order to secure big valuations. In a future post, I may get into the reasons for this, but for now I refer you back to my IPO series in which I look at the incentives of all the players in taking a company public. Put simply, there are many constituencies in private companies who now have very short term time horizons.

The second thing I would suggest for companies and opportunistic investors is to start thinking like vultures. If I had the time and resources, I would start a Vulture Fund. In the next 18 months we are going to see what can only be described as ‘fire sales’ taking place. There will be a lot of companies selling assets, as opposed to functioning businesses. Many of these assets will eventually be valuable, but only after their associated costs are stripped away (i.e. employees and offices) and then bundled up into something else.

This will happen to even seemingly-promising companies. One of my favorite private companies recently imploded. I cannot get into details, but they just expunged the entire executive team and stripped down to just a small, core engineering team. All the business people are gone. This company had started to build real traction with some very promising products, but they are now hunkering own for a nuclear winter.  And as far as I can tell, they did this solely because their board (and one key investor in particular) lost its nerve. The business was on a good trajectory, but to no avail. My advice to that deposed CEO is to raise a few million dollars and prepare for the fire sale that may get him his company back. In this case, I think the Board made a big mistake, and will end up exiting their position at well below what they could have achieved with a little more patience. That being said, there will be many more situations in which the Board and company just end up with no other option.

The third thing to remember is that all things move in cycles. There are dark days ahead, but eventually things will improve again, someday. Recently, I have been thinking a lot about Webvan. Remember them? Your answer to that question will tell a lot about how ready you are for what is about to happen. Webvan raised something like a $1 billion at the peak of the last bubble (and back then that was a huge number). They wanted to launch a web-based grocery delivery company, and built a massive network of warehouses and logistics centers. Then they shut down. At the time, they were held up as an example of the excesses of the Bubble, a demonstration of how any business plan could get funded. Today, their whole vision is very much a reality. In the US we call it Amazon, and in China it is called O2O, online to offline, as exemplified by Alibaba among others. It turned out that some of the problems that Web 1.0 wanted to solve just took longer to execute than anyone at the time realized.

That is going to happen again. I have to think that many of the promises of AI like autonomous cars are going to follow this model. The vision is clear, and some of the key enabling technologies are ready, but the real world implementation is going to prove more complicated than the average start-up can tolerate.

My advice? Sharpen your knives. The old adage holds “Buy when there is blood in the streets.” It seems likely to me that time is coming soon. So while I would not be rushing to invest in adtech or local food delivery, I think the time for bold action is coming soon. Are you ready?