There is a lot of bubble logic in these replies - things like "salaries are destined to go up forever because they've gone up since the dot-com days", "smart people in other fields are baffled by things we find trivial", "programming is incredibly hard so it's obvious we should be paid more," etc. There's probably a kernel of truth to some of these statements, but there are eerie parallels to past bubbles here.

It is my opinion that we are not in a programming bubble, but in a venture capital bubble. The latter causes the appearance of the former. Let me explain the meat of how I think it works.

1) A well-to-do person decides to start a VC fund. This person recruits a few high net-worth friends and convinces them to invest a sum of money in the new fund. Let's say, hypothetically speaking, that this person gets $1m to play with in total from 10 individual investors.

2) This new fund does around 10 unpriced seed investments with its $1m (convertible notes). 50% of these companies do not go on to raise more money, and thus the money spent on them is written off. The other 50% go on to raise a priced A round, whereupon some bigger funds lead the rounds and mark up the price of each company's equity by between 50% and 150%.

3) Our seed investor is now sitting on equity roughly worth $1.25m. This person has made a 25% return on the capital under their management. They take a 5% fee off the top - for a handsome payday of $62,500. The investors are pleased.

4) Then, this thought crosses our brave new fund owner's mind: "Boy, I'm really good at this." So our owner goes out to a wider network and solicits $10m this time, with the intent to participate in A rounds instead of seed rounds. They cite their successful 25% returns in seed stage companies, and people scramble to hand them money to manage.

5) Goto step 2 (but increase the numbers and change up the preferred investment round occasionally)

The sums get bigger, the paper returns get bigger, and the management fees get bigger. But what brings this all to a crashing halt? Where does all that VC money come from?

I believe that this is all a consequence of the zero-interest rate environment in the United States throughout the last decade. People with assets have largely had no attractive places to put their money, so they were forced to chase riskier and riskier investments. Venture capital was the perfect target - the compelling narrative of technological progress makes for a feel-good investment avenue, and the general opacity of tech concepts to non-technical people makes the mystique that much more compelling. Plus - there's a mathematical strategy here! Why buy bonds and get a lower rate of return than inflation when you can chase unicorns? Why not take the probabilistic and "scientific" approach by investing in 100 companies - expecting 90 to die, 9 to do okay, and 1 to be a mega-success that makes your investment worth it?

The hunt for the fabled "unicorn company" is this economic cycle's equivalent to "housing prices are always going to go up." But the models work! you say. The success and failure probabilities are accurate! So were the models that led to mortgage-backed securities - if we bundle enough of these loans together, on average they will have to be profitable - right? The problem then, as now, is that such a model is only accurate when the broad macroeconomic conditions underlying it remain true. When you run out of money coming in, the music stops. Loan defaults started to spike and the MBS model fell apart. Likewise, I suspect that less money entering the VC world will presage the whole thing falling apart - and as interest rates climb, it's only a matter of time until debt is more profitable again and the easy-money faucet turns off.

I've ranted for a bit, so you're probably wondering - how in the hell does this relate to the OP's article? Let's now address the other side of the equation here - where does all that VC money go? Well, that money that was invested in all those failed startups (or the successful ones) gets spent on something. But what? It clearly doesn't all get spent on catered lunches and ping pong tables (much to the chagrin of our industry's critics). But it does get spent somewhere - and I'd hazard a guess that the most popular targets for that spending would be Facebook Ads, Amazon hosting, Apple hardware, Google Ads, Microsoft software, etc. The VC money gets spent on stuff the tech giants are selling, fueling the dramatic increase in their share prices over the past ten years.

Given that OP's article makes the point that compensation is huge and primarily driven by share price increases, it's easy to see how VC money could be actively impacting this situation. But as a gut check - if all of this talk of "US economic conditions fueling a domestic venture capital bubble" does have a grain of truth to it - what would you expect economic conditions for software engineers to look like in other parts of the world?

London: https://www.glassdoor.com/Salaries/london-software-engineer-...

Paris: https://www.glassdoor.com/Salaries/paris-software-engineer-s...

Berlin: https://www.glassdoor.com/Salaries/berlin-software-engineer-...

Interesting, right? Proximity to the nexus of Sand Hill Road does appear to have an impact. I'm no data scientist, but I imagine there's enough publicly available data about venture rounds and salaries that a more rigorous assessment of this general thesis is possible. If anyone knows of existing studies, please let me know.