Commercial lease is really only applied to companies that can stay in business. A long lease is often not enforceable. The incorporated company simply declares bankruptcy and it's hard to collect the money on the full term of the lease. I remember in the Dot Com bust days some failing startups simply stopped paying rents but stayed on, to stretch that last dollar or to burn out that security deposit.

The entire point of a startup is to not stay its current size - either it will grow wildly or disappear altogether.

If you can comfortably occupy the same amount of space for 2+ years, you're not a startup, you're a small business.

Quick example: imagine you are an IT consultant brought in to automate data manipulation processes in BigCorp (or more often MediumCorp since BigCorp has an internal team doing this already).

There's 150 people currently downloading data into Excel, running a few macros they know nothing about, and then reuploading the CSVs. You figure out what the data flow is, read up the API doc, and build some kind of process that does it in 5 minutes in bash on a medium instance on AWS, whilst fixing the errors the macros were making.

Will it be an easy sell? You were expressedly brought in to do this, but you'll find that the manager in charge of the 150 people - let's call him the CXO - is going to fight every inch of the way to stop you from launching your product. He'll point at the diff between his crappy but nevertheless, in production stuff and your script as cause for audit, creating a weeks/months long review process (because nobody can find the time, or wants to take the responsibility and the fight). He'll blame you for creating a "toxic" work environment. He'll bog you down in endless 2h long lunchtime meetings unrelated to the main point in an attempt to make you lose your professionalism in front of external stakeholders. He'll list missing new features then put them through the audit process.

Eventually, once a few months have been wasted, he'll point at your lack of progress as a sign of your incompetence, even though the working version was ready to be rolled out months ago. Nobody will question him because the company is profitable and it doesn't really matter how the process is done, just that it gets done. So, you leave the project, pocketing your pay - which they will pay on time so you don't make a fuss - and things continue as before for the CXO and his team, perhaps even gaining approval for a further 50 in headcount to develop the new features or to compensate for the expensive SQL and scripting training (MS stack, of course) that he's sending his entire team to in batches, whilst you'll have made a bad impression on that company's management and be burnt out of their network.

The CXO benefits outside the company as well, as he can now say he managed XYZ employees which is how people automatically gauge someone's success. This enables a succession of ever greater responsibility positions (or entry to Harvard Business School, who actually asks you "how many reports did you have"). "Well, if the previous place trusted him with 150 people..."

It's even worse in startup space because VCs and many founders understand that growth at all costs is what matters, so there are significant incentives to doing it today, even if badly, vs doing it tomorrow but well and in a way that doesn't pile technical debt. It's a winner takes all, so you just need to pour in enough millions and you'll reap the billions (in fact this is also the very structure of a VC's portfolio, investing in 10 different ways of doing the same thing in the hope one wins, even if it means the others all die).

So some founders may be doubly incentivized: making the company as large and cash flow burning as possible both to appear like the obvious winner, and to justify mammoth fund raises at a time of abundant capital seeking yield; and, if things go wrong, well, they managed hundreds of millions of VC dollars and hundreds or thousands of people in dozens of global offices and it sounds damn good for their next try.

And this is where both WhatsApp and Instagram did things differently: they focused on getting the user growth scalable without enormous headcount growth, whilst - at least in Whatsapp's case - having enough cash flow to hold on until the mega acquisition (and in Instagram's case, sustaining the company on the early rounds). Pointing at lack of revenue is not particularly useful - I would say even a red herring - when even SaaS companies go 5-10 years without showing profitability and with enormous fund raises for growth (just look at the analytics space for recent examples).

The hedge fund space - which is almost by definition results driven - has already caught on - Bridgewater type funds with a thousand employees are the exception rather than the rule and seeing AUM over a billion USD per head is more common than "unicorn" startups.

I agree with pg's definition of a startup as being about growth (in the eponymous essay). In users, not headcount, in revenue, not funding. Even if there are many cases where one drives the other, targeting headcount growth and fundraise amounts as success KPIs is an instance of the https://en.wikipedia.org/wiki/Cobra_effect.

Growth for the sake of growth?

I would actually think that this is pretty far away from what startups are about.

Established companies grow and shrink, too. They close offices and factories, open new ones, and occasionally file for bankruptcy protection. But they do these things much less frequently than a new company, and they do it with the backing of a much larger and more reliable cash flow. That cash flow means that even in bankruptcy, an established company's creditors usually end up with a significant recovery. From a landlord's perspective, these are the things that make established companies more attractive than startups. Thus, in this context at least, "startup" means nothing but "new company" and carries none of the other connotations that most people here assume when hearing the term.

You can, of course, attempt to appropriate the word "startup," redefine it to mean something else, and then attempt to get others to use your new definition, but empirically it seems that almost everyone is using pg's definition above for that word.

4 years in, no profit. After 5 years, they became "profitable before marketing costs", which was the largest business expense (in the millions).

Huh. I should dig and find out if they still call themselves a startup from 2009.

So one wonders about the whole "wisdom of the crowds" or "herd" in this case, and whether or not they can sense something that isn't showing up in other indicators. I've been looking but other than the extensively covered late stage valuation madness I've not found good correlation for this feeling.

In Surowiecki's telling, if you get a room full of people to write down a guess about how many jelly beans are in a jar, the average of all the guesses will be surprisingly accurate. But if the people are allowed to yell the answers aloud, the first person who yells a guess "anchors" the guesses, and so if that first guess is radically wrong, a substantial bias is introduced into the overall distribution of guesses.

Real estate agents in a small geographic area, such as one city, often talk to each other, and therefore they generate a conventional wisdom, but each of their opinions influences everyone else's opinion. So you can get a herd action that is greatly at odds with reality.

That's less because the numbers (measured inflation and unemployment) actually call for an increase and more to just remind markets that: rates won't stay at zero forever and non-zero rates aren't the end of the world.

Until Detroit and Stockton and Pittsburgh are doing well again, aggressive policy is going to continue to fuel massive growth in SF and the Bay Area.

Tightening is not coming fast nor aggressively.

Detroit and Stockton, less so.

Or, thinking about the other direction, even restricting ourselves to within California San Francisco and the Bay Area single-handedly pay for a massively disproportionate part of state government services and redistribution. Perhaps it's time to go way back to metropolitan city-states as the proper scale of government.

The problem here is twofold: first, not enough of the money being created is flowing into operating assets; second, the operating assets being purchased with this money aren't productive. This seems like an obvious and natural consequence of a service economy, in which the dominant inputs are labor and real estate. When you pay higher wages, that money has to go somewhere. Some of it goes toward consumption, but most is surplus and gets invested. It has the same problem it had when it was created: it can go toward real estate, operating assets, or portfolio investment. No one wants operating assets in a service economy (because they're not productive), so it ends up in real estate or portfolio investments. That drives up asset prices but does not increase output. Diverting more of this money into operating assets (things that make stuff) would increase output and alleviate the pressure on asset prices. Instead it goes into more wages (paying people more does not make them produce more) and real estate (paying more for land or office space does not make it produce more, either). One of the few bright spots was oil, but the sharp drop in prices has made investment there unattractive as well, and has reduced nominal output at the same time.

The central bankers can control the rate of asset price inflation by making money cheaper or more expensive, but they can't do anything to increase output when the money they create is used primarily to acquire nonproductive assets, or to acquire at higher prices assets that are already being fully utilized. That's why real estate is expensive and output is stagnant, and why fiscal transfers won't solve anything.

Any number of solutions suggest themselves: relaxing regulatory requirements to make manufacturing, utilities, and other non-service industries more productive; fixing China so that surplus cash in the US can be invested in operating assets there instead of domestic real estate; fixing laws that limit the supply of real estate, both to directly reduce the price and to make it less appealing as an investment; investing more tax revenue in infrastructure instead of transfer payments to individuals (where much of it ends up in ... real estate); radical alternatives like breaking up the United States into separate nation-states that are more cohesive internally. I'm sure you can think of others as well.

That said, why would the Fed tighten money in the fall when we're so close to an election year? I know they hold longer terms to hopefully avoid political swings, but, it just seems like bad timing.

That said, I'm not entirely convinced Yellen will tighten. She has a reputation as a dove on monetary policy and seems weak to me, overly afraid of the effect her actions will have on the stock market. It wouldn't surprise me if we end up with another 1997 situation, where some temporary economic instability makes the Fed put off tightening or even introduce additional stimulus, and this ignites a speculative bubble that raises prices beyond all reason and then bursts.

(The username is ancient, I've had it on various sites since college, and while I'd love to be thought of as a prophet, my track record isn't that good.)

I doubt this will take place. If anything, I think we will see deflation?

These low interest rates have provided gambling money to the 1 percenter's. (I don't want argue--just the way I see it.)

There's a part of me that want to cash in on these low interest rates(part owner in a home in the Bay Area--that people really seem to want.), but my inner voice--wants the fed to raise rates?

Why--the poor/middle class have been left out of the recovery(unless you are in tech.). We get essentially 0 % on our meager cd savings accounts. We can't gamble in this bubbly/momentum/free money stock market?

In essence, what the poor/middle class got out of this recovery is no change in wages, higher rent, higher fees, and 0 percent on our savings. (I do appreciate the access to health insurance though. At least, they(hospitals) can't attach my interest in a home-- if I got sick, and managed to survive? Before Obama Care, I couldn't get health insurance, and always knew I was one judgement away from being homeless. (For those that hate ObamaCare, I would be happy with a 2 million, nationwide--homestead exemption, incorporated into our federal bankruptcy laws? All homes should be judgement proof.)

So Janet--raise the interest rates. The rich boys are just gambling, and laughing! They have so much money they don't know where to put it? The REIT's are buying up too many commercial/residential units; on your free money--I sometimes wonder whether its foreigners(who can buy a home in the U.S., as easily as picking up a phone), or REIT's whom own more?

See, only the banks, and their Best clients are given this free money. I am not seeing the trickle down? We got out of the risk of Depression? It's time to raise rates, and never bailout another bank again.

The problem is that the American middle class needed the bailout that went to the banks and raising interest rates will hurt an already down and out main st. Frankly, we should have just given a massive tax rebate to the middle class. Of course, it's politically infeasible, but they would have actually spent the money in the real economy rather than using it to drive up asset prices.

Plus just in terms of the benchmarks they watch: The headline CPI is currently at a miniscule 0.1%, way below the 2.0% target. The personal-consumption-expenditures (PCE) rate is somewhat higher at 1.3%, but still below the target.

You're right that it's bad timing in that their rate increase is likely to come shortly before a bust, and therefore will be second-guessed to no end. But that's the case precisely because it's coming far too late. The solution was to normalize rates near 2% during 2013 and then raise them slowly from there as data improved, not to delay further. Normalizing policy sooner would have limited the overheating this article is all about and therefore limited the impacts of the coming bust, perhaps even to a sub-recession level. Further delay will make things much worse.

The election is irrelevant to an independent central bank, and in any case the major elections are (not that you'd know it from reading the MSM) 15 months away.

The best time to raise rates was a long time ago. The next-best time to raise rates is now.

If the SF Bay Area had its own monetary policy, things look a lot different in the local statistics, of course.

In the 70s the big focus was on the wage-price spiral, so hourly wages and prices paid were important indicators. Today there is zero wage inflation going on despite near-full employment, and instead asset prices are in an upward spiral. The preferred indicators should have changed to reflect reality but they haven't. That reality is that outside of a bubble sector there may not be wage growth during the lifetime of anyone now living. When the unions ruled the roost and labor's share of revenue was sky-high, a focus on wages was appropriate. Today, unions are almost gone, wage growth is nonexistent, and virtually all money being created is flowing to owners of capital. I'm not interested in debating whether this is healthy, and neither should the FOMC; that's not its job. But under these conditions, asset prices should be the primary driver of monetary policy, not wages or employment and certainly not the near-useless CPI-U. That driver is screaming slow down!!! and has been for some time now.

I think that the shared office spaces are really a wonderful solution so that young companies can have a great space without the long-term commitment. Ironically when we visited one (in Chicago) there were quite a few corporate "outposts" there with large companies like IBM.

I've been solidly in the "actual value is being created by a lot of companies, mainly because tech (via startups) is destroying existing monopolies", but that's less true of some.

I think SF itself is probably a startup bubble and will correct, but it might just be a "go back to how things were a year ago", not a complete implosion. And the least bad way for this to happen is by sub-sector, like happened with all the shitty social buying apps a few years ago.

This is very similar to the dry-bulk market. It should be instructive to look at how companies like DryShips and Diana Shipping handled the enormous spike in the Baltic Dry Index several years ago, how they've fared since, and how they've managed their businesses afterward. The cyclical nature of markets cannot necessarily be controlled, but it can be harnessed to outperform one's peers, and if you are a REIT portfolio manager or smaller property manager, your job depends on doing just that.

It's already close to late 2015, so the halfpoint of the predicted period is only 18-21 months away. That fits your observation that landlords expect the bust to be less than 18 months away.

Surprised that was, dare I say, "fair and balanced".

What interested me was the way that in this discussion, each of the separate reasons for the landlords being reluctant to rent to start-ups has been discussed separately - analysis - where what the landlords are doing is making a synthesis.