Larry Scheinfeld: De-valuation of Multiple Startups May Signal Bad News for Unicorns
We have been hearing that the tech bubble will burst for years. Every quarter, a tech, finance, or venture capital publication threatens that the tech sky is falling, but now, it seems that that Chicken Little sentiment is closer than before.
For those who can still picture the early aughts when the dotcom bubble collapsed within itself, it was more of a surprise. We should know better from those experiences to avoid Tech Bubble Burst Redux, but do we?
Evernote devaluation
An indication that the bust is imminent is investor confidence, or lack thereof. Recently, investment firm Fidelity Investments devalued multiple startups including Dropbox, 23AndMe, Snapchat, to name just three. In fact, Fidelity cut down the valuation of Snapchat by 25% at the end of last year.
Currently, 150 tech startups are defined as unicorns (companies with valuations over $1bn), but the numbers may be shrinking. Only twelve new unicorns were named at the end of 2015. According to a recent Fortune article by Dan Primack:
The number of deals done in Silicon Valley decreased by 35 percent, according to analytics firm PitchBook, and V.C. funding decreased by 13 percent to $3 billion. (Nick Bilton reported on the impending collapse in an article for Vanity Fair last year.)
DropBox devalued
Mega-rounds—defined as rounds of funding of more than $100 million—have also declined. Zenefits and Jawbone, a wearables company, have laid off employees. Other startups, like early Lyft and Uber competitor Sidecar, have folded. Still others, like on-demand valet service Zirx, have pivoted their businesses. And last week, analytics firm CB Insights published its own Downround Tracker, a start-up death-watch list of at least 55 companies that have raised money or exited in a down round—meaning a company raised a new round of funding or sold itself for less money than it was worth to investors before.
VCs aren’t the only ones wary of investing in tech, the public’s interest has started to wane. With unicorns like Evernote, Spotify, and others you’ll never hear of (Vancl) unable to meet expectation, the Silicon Valley infrastructure may be in for an implosion.
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