“We’ve been in the middle of a rollicking party that’s gone on for five years and someone has snapped on the light switch,” said Chris Douvos, whose firm Ahoy Capital invests in venture-capital firms and startups. “We are all adjusting our eyes and no one has any idea how the rest of the night is going to go. That’s how Silicon Valley feels right now.”
Silicon Valley’s big game players from WeWorks to Uber Technologies Inc. have taken a collective blow of about $100 billion this year. Instigating some startup executives to talk up profitability over growth and leading venture-capital investors to spend more cautiously.
The Scenario Right Now:
Recent weeks have resulted in the downsizing of car-subscription company, Fair and software company, UiPath. Lime, a Scooter renting company, is reconfiguring its operations, just to comfort its investors that it can turn some profit.
The startup industry remains drenched in cash, at the same time interest rates are historically low. Still, a level of record-breaking uncertainty has been cast by the magnitude of the value destruction over the venture-capital industry. It has also forced some soul-searching and calls by investors for stricter corporate governance.
Entrepreneurs, venture capitalists, and startup advisers are saying that financing deals are taking more time. Deals for consumer-technology companies, which just six months ago would have closed in a week or two, are now taking a month or longer. Startups that were planning on raising $80 million to $100 million are now being told by investors that they should expect closer to $20 million to $30 million, said Adam J. Epstein, who advises startup CEOs and their boards.
The condition for WeWorks became worse when its parent company, We Co., filed to go public, revealing its steep losses, lax corporate governance, and multiple conflicts of interest in detail.
Uber’s market capitalization is about $33 billion below the line from its valuation, and $10 billion vanished from Lyft’s capital since it went public in March. Juul Labs (an E-cigarette company), which once ranked second behind WeWork in private-market valuation, is cutting about 16% of its workforce. Its largest investor sliced Juul’s valuation by $14 billion after the company suspended its best-selling vaping products amid a regulatory breakdown.
“Every few years something happens to smack people on the head,” said Epstein. “The impact of WeWork on the funding marketplace has been material. I have seen that in real-time.”
According to investors, meetings were held with venture-capital firms over the past two months, in which some partners voiced fresh concerns about making back their investments. The number of funding rounds raised by so-called “unicorn” startups fell to their lowest level since the second quarter of 2018 in the third quarter this year, according to data firm PitchBook.
Vitaliy Katsenelson, Chief Executive of Investment Management Associates Inc. stated, “We are in the dot-com bubble 2.0, except it’s not happening in the public markets but in the private markets.” Katsenelson’s Colorado investment firm sold its stake in SoftBank in October over concerns regarding Japanese investor’s plans for a second tech megafund.