* Dropbox was warned by its investment bankers that it would be unable to go public at a valuation anywhere near close to what its last private round (which had most recently risen to $10 billion from $4 billion a year ago) valued it at.
* Square, last private valuation of $6bn, $3.9bn at IPO
* Snapchat, written down 25% by Fidelity ($31 -> $23)
* Combined "valuation" of all US unicorns is $486 billion. Their combined profit? $0.
The cresting wave of immense private valuations is crashing onto the rocky shore of public markets. Funding is going to shrivel.
There's a difference between a correction in the market (or more specifically a correction with regard to a few companies) and a bursting of a bubble.
Tech investment volume today is much, much smaller than it was in the 2000s, despite the fact that the number of people on the Internet has grown by two orders of magnitude. Actually the funding per person online has remained almost on a flat line from 2002 to today.
There's some frothiness in the late-stage market still, and but those are the companies that are being corrected. That's largely happening because none of them are IPOing, and with interest rates being practically 0 investors have to put their money somewhere. So they build some losses into a late-stage portfolio theory instead of distributing it in the S&P 500.
Some of those companies will end up with lower valuations, but that's always happened, and that's built into the IPO model. In other words, even if several late-stage "unicorns" completely failed (and some undoubtedly will), that doesn't mean that the entirety of tech will be viewed as worthless. The only way it is worthless is if the companies won't eventually generate profits. Last time that was largely the case because the unit economics were bad. This time we see real revenue coming through and the unit economics are there for most companies.
I remember all of HN being positive that Instagram selling for $1B to Facebook was the height of the bubble. But now Instagram is returning >$500m in revenue to Facebook per year. Turns out it was a very, very savvy purchase.
All of the current tech "unicorns" combined are worth 2/3 of Microsoft. You can make the argument that owning all of Twitter, Amazon, Square, Snapchat, Dropbox, Uber, Zenefits, etc. would be worse than owning 2/3 of Microsoft, but I could definitely see the other side of that argument, as well.
Isn't there a growing murmur that these "private valuations" are in some ways imaginary as when you look at the terms of many rounds of funding you find deals which are less like equity and more like debt?
Snapchat, written down 25% by Fidelity ($31 -> $23)
Unfortunately that's probably not the correct way to estimate Snapchat's value based on Fidelity's assessment. Since Fidelity probably has a liquidation preference—and a recent one, at that—the implied new valuation of the company is much lower.
Depending, of course, on a whole bunch of details about the investment and Fidelity's assessment that I personally don't know.
https://news.ycombinator.com/item?id=10546947
* Dropbox was warned by its investment bankers that it would be unable to go public at a valuation anywhere near close to what its last private round (which had most recently risen to $10 billion from $4 billion a year ago) valued it at.
* Square, last private valuation of $6bn, $3.9bn at IPO
* Snapchat, written down 25% by Fidelity ($31 -> $23)
* Combined "valuation" of all US unicorns is $486 billion. Their combined profit? $0.
The cresting wave of immense private valuations is crashing onto the rocky shore of public markets. Funding is going to shrivel.