It was fun while it lasted, but after years of high ratings, Silicon Valley has sunk into the worst selling Since the stock market crash of 2008.
After the pandemic-fueled boom sent tech names up, many of these companies experienced the worst six months of their lives as publicly traded companies. Peloton, the exercise startup, is a symbol of this ominous reality: Its shares have fallen from a high of $163 at the end of 2020 to around $17. On Thursday, the Wall Street Journal reported company executives They were looking to sell a minority stake to an outside investor.
David Sachs, a San Francisco venture capitalist and former CEO of PayPal, said this week in… tweetreferring to the turbulent days of the early 2000s.
Technology companies are often particularly vulnerable during an economic downturn, because most of these early-stage companies are not profitable, and instead rely on venture capital investments to make ends meet while focusing on rapid growth—something that is more difficult when consumer demand slows.
The companies that have made headlines in the past 18 months for raising millions of dollars to achieve multi-billion-dollar “unicorn” valuations have announced layoffs. It includes a celebrity video clip company a barrier; stock market trading app Robinhood; thracio, which buys and sells third-party brands on Amazon; recruitment group Workplace.
Some people are starting to use the phrase “Zombie unicorns” To refer to high-value but shaky startups that may need new investors to bail them out.
The Peloton Showroom displays bikes and treadmills on January 20, 2022 in Coral Gables, Florida.
Joe Riddell | Getty Images
“A lot of this has to do with companies that never thought the venture capital gravy train would slow down,” said Dan Primack, a large-scale technology and finance columnist at Axios, books this week.
The massive price cut has caused some observers to pause and reflect on the current state of the technology. The mood has changed: Our economic environment is less certain, and the floor on which the tech scene stands is beginning to emerge, as technology CEO and venture capitalist Dan Rose described it in a tweet, like an “cliff.”
Another tech investor, Zach Koelios, noted that recent years have seen an explosion in tech finance — a phenomenon that appears to be coming to an end.
In an interview, Koelios said that low interest rates and an abundance of investors have made it easier for tech entrepreneurs to establish and grow businesses in the past decade. That has changed.
“Everyone was writing checks aggressively and really fast, and that trains the founders in a ‘fomo-fear’ mentality — you had to move fast or you’d lose,” Coelos said, referring to the “fear of missing out.”
He said the pressure started building at the beginning of the year when interest rates started to rise and public equity markets started to fall. He pointed out that the situation worsened amid the first-quarter earnings season of 2022, as the traded companies presented disappointing results or expectations.
“This earnings season has really been a payoff for a lot of people,” he said. “Almost all of the big public tech companies have missed their numbers, and when that happens, the tide can turn really strong.”
The sell-off began in the winter of 2021 and extended into the first half of 2022 amid fears of an omicron variant of Covid and a more hawkish tone from the Federal Reserve. War in Ukraine, high oil prices, and high inflation have since conspired in declining oil markets. One of the hardest blows to the tech world came at the end of April, when Amazon reported weaker-than-expected results and a bleaker outlook for the rest of the year.
Now tech startups won’t be able to raise money so easily, Koelos said, forcing them to maintain cash and scale back growth plans.
“Patience is your friend in these situations. You don’t have to worry about being the fastest growing company in the world. It’s a different way of thinking.”
Instead, he said, startups can focus on improving their products and growing at a more sustainable rate.
Bill Gurley, general partner at venture capital firm Benchmark, said some tech startups that previously didn’t feel pressure to turn a profit will now be asked to do so, while also being careful to handle the expenses.
“People want real profits. They want real and free cash flow now,” Gurley said For CNBC this week.
“All of these companies that have lived in this very frothy environment for the past decade have had to do some kind of readjustment, and the sooner they do it, the better,” he said. “But it’s not easy to have everyone in your organization work in a unique way for 10 years.”