Investments

Silicon Valley Braces As VCs Pump The Brakes

Profits are being pushed over progress as Silicon Valley investors start reeling in the billions that startups have come to expect, The Wall Street Journal (WSJ) reported on Tuesday (Nov. 26).

“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,’’ Chris Douvos of investment firm Ahoy Capital told the WSJ. “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.”

In less than 10 years, U.S. venture capital investments soared to $138 billion in 2018 from $27 billion in 2009, the report said citing PitchBook. Unicorn funding fell in the third quarter of 2019 to the lowest level since the second quarter of 2018. 

Initial public offerings (IPO) are down more than 30 percent from the second to the third quarter of 2019, fund manager Renaissance Capital told the news outlet. 

Silicon Valley startup rock stars like WeWork and Uber have collectively seen valuations plummet $100 billion in 2019. Tech startup deals are now taking months instead of weeks and financing slashed in half or more, startup advisor Adam J. Epstein told the WSJ.

“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.”

The SoftBank-backed office-sharing startup WeWork saw its initial public offering (IPO) go bust and its valuation sink to about $8 billion from a high of $47 billion. Also backed by Japan’s Softbank, Uber’s valuation has dropped about $32 billion since its May IPO.

Since going public in March, Lyft’s market cap dropped roughly $10 billion and the valuation for e-cigarette company Juul Labs was cut by $14 billion.

Investors and attorneys from Silicon Valley are pressing for an IPO alternative to help new businesses raise funds. Sources told The Financial Times in September that Goodwin Procter, Latham & Watkins, Morgan Stanley and Goldman Sachs held meetings to discuss modifying existing regulations. 

——————————–

Latest Insights:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. In the December 2019 Mobile Card App Adoption Study, PYMNTS surveyed 2,000 U.S. consumers for a reveal of the four most compelling features apps must have to engage users and drive greater adoption.

TRENDING RIGHT NOW