The End of Free Money — Sella Rafaeli

It’s happening again. Two years ago, at the start of the pandemic, every founder got a memo telling them to cut costs and extend runway. Then the opposite happened: interest rates went to zero, money flooded into tech, and 2021 became the most frothy year for startup funding anyone can remember.

Now the bill is arriving. Interest rates are going up. Tech stocks are down hard. Crypto is in free fall. Sequoia just showed its founders a deck titled “Adapting to Endure”, YC sent its companies a note telling them to plan for the worst, and the first layoff announcements are trickling in.

The era of free money is over. And this time, I don’t think it’s a two-month scare.

What free money did to web development

When capital is basically free, a lot of things that don’t make sense start to make sense, at least on paper:

Hiring ahead of need. Raise a big round, double the engineering team, figure out what they’ll do later.
Building for scale you don’t have. Microservices, multi-region, a platform team, for an app with a few thousand users.
Rewriting things because it’s fun. The new framework is out; let’s migrate the frontend. Again.
Buying a SaaS for everything. Each one is “only” a few hundred dollars a month. You now have forty.
Growth at any cost. It doesn’t matter what the unit economics are, as long as the chart goes up and to the right.

None of this was crazy in a world where the next round was a sure thing. Every one of these decisions is now a liability.

This is a good thing (for the right teams)

I don’t want to be glib about layoffs - people losing their jobs is genuinely painful, and a lot of good engineers are about to have a hard few months.

But the industry as a whole is going to get healthier. When money costs something again, companies have to ask the questions they should have been asking all along:

Does this feature make or save money?
Do we need this service, or do we just have it?
Is this the simplest thing that works?
Could two senior people do what eight people are doing now?

I wrote about this in 2020 in Runway Engineering, and back then it turned out to be early. Everything in it is more true now. Complexity is a loan, and the interest rate on that loan just went up - literally.

What I’d do this quarter

If you’re a CTO:

Make a list of every paid service, with its monthly cost and what would happen if you turned it off tomorrow. Turn some off.
Look at your architecture and find the most expensive piece to maintain (not just to run). That’s usually the one that needs simplifying.
Stop any rewrite that doesn’t have a clear business reason. “It’ll be cleaner” is not a business reason.
Prefer a few senior people over many junior ones. In a downturn, you’re paying for outcomes, not headcount. (I say this with no pretense of neutrality.)

If you’re a developer:

Get close to the money. Understand how your company makes it and how your work connects to it. The engineers who can explain their impact in revenue terms are the ones who keep their jobs and get promoted.
Become the person who makes things simpler. Every company is about to love that person.
Build your network now, while you don’t need it. When the market tightens, the jobs that never get posted go to people somebody already knows.

The good companies are made now

Some of the best companies of the last cycle were started in 2008-2009, when nobody had money and everybody had to be careful. Constraints force focus. The startups that come out of the next couple of years will be leaner, more profitable, and more boring than the ones that came out of 2021.

As someone who has been advocating for boring technology for a long time, I find that oddly exciting.

When money is free, anything works. When it isn’t, only good things do.