"Everybody in the PR business wants to get out of San Francisco," she told me. "None of these Web 2.0 companies are actually making money. This bubble's about to burst."

That bit of cocktail chatter is from a few weeks ago, at one of the trillion-and-one tech mixers that happen in San Francisco during the conference season (which, as near as I can tell, is year-round). She was a PR person for a major software company, and in the course of our conversation she volunteered, entirely without my prompting, that the mood in the Valley was incredibly grim.

Now, I have no idea what PR people know about anything apart from PR, but my immediate temptation was to imagine that this whispered flight of the PR flacks could be some kind of secret Valley omen, sort of like the way that wild animals can magically sense an oncoming tsunami, so they rush to high ground while the humans stand around wondering why the animals are acting funny. I'm apocalyptic that way, and I tend to think we're all up a creek and the Asian banks are holding the paddle. But I've learned in my short time here that I'm relatively alone in my gloomy disposition, and that people in the Valley are indefatigably sunny, especially when it comes to asset valuations.

So when things further deteriorated late last month, and various Valley luminaries began flogging the "we're going to be ok... we live in a bubble over here on the West coast" line to news outlets and bloggers, I was inclined to believe that they believed it. And what do I know—I just moved here. Maybe this place really is a bubble in the "boy in the bubble" sense, and not in the "dot-com bubble" sense. But I doubt it, and the darker part of me (the part that still lives in Boston) suspected that maybe they doubted it too. Could it be that these guys have their assistants out stockpiling arugula and shotguns, while they lie through their smiling teeth to worried reporters like Om Malik?

It was in this conflicted frame of mind that I viewed the the leaked slides and notes from the now-infamous "RIP: Good Times" presentation that VC stalwart Sequoia Capital, which they gave to their portfolio CEOs this past Wednesday. In spite of the fact that the presentation contains a pretty hefty dose of pessimism, there's a part of me that still just doesn't believe that it's possible for the Valley's VCs to be this sincerely dour.

Are they serious?

The presentation starts out solidly enough, and it contains a great recap of how we got into this present mess. But the last part is just completely over-the-top in a "scared straight" sense, like when that cop came to my junior high gym class and told us about how cocaine use can rot out the cartilage in your nose to the point where you can pass a rag from one nostril to the other. (Cops really knew how to scare kids then, because even the juvie-bound among us thought that this rag-through-the-nose story was the Grossest Thing Ever. But I digress.)

So how bad is it, according to Sequoia's slide show? Well, if the latter half of the presentation is any indication—especially the slide of the Time Magazine cover featuring a Depression-era soup line—they'd like their CEOs to think that Wall St. has just released Depression 2.0b12, and that the gold master could drop any week now.

The slide after the soup kitchen one shows the dreaded, Japan-in-the-90s-style "L"-shaped curve. The "L" curve is the one where stock prices drop precipitously and then stay low for a long period of time, as opposed to the hope-for "U"-shaped curve, which has prices dipping and then recovering almost as quickly. So the "L" curve is scary for people with money to spend, but even worse is one of the later slides, the "Death Spiral," which features a skull in the center of a vortex.



Foul and formless Azathoth, in the black cavern at the centre of all infinity.

I imagine that the Death Spiral slide is the moment where the assembled audience is supposed to truly grok the gravity of the present situation, and to understand that they really must do that thing which they most dread: become profitable (or else). I've no doubt that the assembled crowed responded to the threat of mandatory profitability the way that my adolescent classmates responded to the cop's rag-through-the-nose story—i.e., by looking at Sequoia's Doug Leone and thinking to themselves with horror, "I wonder if he's actually seen people do that... that profitability thing."

A recipe for non-disaster

As a route to profitability, Sequoia urges its CEOs to aggressively pursue a range of novel and exotic measures, like, y'know, not wasting money on things that don't work, and actually having a real revenue stream that involves selling a "must-have product" to customers who have the "ability to pay." Seriously. You could entitle the presentation, "How to do business in a world where rich backers are not just shoveling money at you," because that's essentially what it is.

Reading through the presentation, I feel like some prudish southerner who showed up at the hippie nudist beach unawares, and then got a sudden, hairy eyeful when the tide went out and left everyone standing there naked. And now they're all looking at me like, "you're not from here, are you?" (Metaphor stolen shamelessly from Warren Buffet [PDF].)

So yes, it is true, apparently people here were really not doing most of this stuff. And yes, it's also true that they're really going to have to start.

I've heard from more than once person who's trying to raise VC in the present environment that the spigot is indeed shut off, and many VC firms' partners (i.e., the rich guys with cash to give out) have let it be known that anyone who wants fresh money to blow should look elsewhere for the next few months. Those with money are keeping it on the sidelines while they wait to see if the rest of the mad, prophetic rantings [PDF] of Nouriel Roubini actually come to pass.

As for the PR woman that I quoted at the outset of this article, yeah, maybe her friends are smart to start looking for someplace cheaper to live, given the Sequoia slides that advocate cutting way back on any sales and marketing efforts that can't measurably deliver. Or maybe all of those folks should just wait another week or two for San Francisco real estate to go into free fall, and then they'll be able to afford this place again on their freshly cut base salaries.

Oh, I know that such a thing can't possibly happen here—since moving to the region I've heard the bit about Bay Area house prices never-ever-ever going down almost as many times as I've heard the Mark Twain quote about summer in San Francisco. In fact, I'm sure there was a whole team at Lehman whose job it was to keep a master list of Asset Prices that Can't Possibly Fall, and "real estate, San Francisco" was probably right after "real estate, Manhattan."

At the end of the day, I still don't know if the Sequoia VCs believe all of their "this is not your father's market crash; it's your grandfather's" straight talk, but then again, I'm not sure it really matters what they believe. What matters is that the dominoes are still falling, and nobody really knows what kind of world we'll be living in when they've settled. But on the off chance that the Sequoia folks are (accidentally) right, I've got a few boxes of MREs and a giant plasma screen TV, so as long as the Internet still works and the Playstation Store stays online, I'll be ready for anything.

Further reading