Demise of the Unicorns? Snapchat's Valuation Drops by 25 Percent
This year has seen the slow, and somewhat quiet, devaluation of tech companies, the latest being Snapchat, that had once been valued in the multi-billions. Snapchat's valuation dropped by 25 percent this week according to a quarterly portfolio released by Fidelity mutual fund. The company had been worth $16 billion, but now it's worth $12 billion.
Other tech companies, so-callled "unicorns" for their estimated worth of over a billion dollars, have seen similar plummets in worth this year. Dropbox, a popular cloud-based file-sharing service for businesses and individuals, found itself unable to attempt IPO after BlackRock mutual funds slashed its valuation 24%, down from $10 billion. And Square, Twitter CEO Jack Dorsey's other project--a mobile credit card payment service--recently took about a $2 billion hit to its valuation, down now to $4.2 billion.
According to Mashable, the "era of free money and wild expectation appears to be ending, for now":
[General Partner at venture firm NEA Harry] Weller says that beginning this summer, private and public investors began to reassess just how much some of these startups are really worth.
That shift coincided with broader instability in the market from concerns about China's economy slowing down and a looking interest rate hike by the Federal Reserve, as well as worries at the time that Greece could fail to get a bailout.
.... Some startup founders have already been thinking of their "plan B," setting aside money to survive a tech winter.
The striking decrease in valuation for these tech companies has largely arisen in the moment they've chosen to go public, as investors assess how much they are worth vs. the actuality of what they can get in the market. According to the New York Times:
Most of the largest mutual fund companies, including BlackRock and T. Rowe Price, have pricing committees that work independently from the portfolio managers who bought the shares. This is done, [Managing Director at Duff and Phelps David] Larsen said, to prevent money managers who might have a stake in keeping a valuation high from influencing the valuation.
In the case of Fidelity, it valued its stake in Snapchat at $22.91 a share as of Sept. 30, down from $30.72 in the previous quarter, according to data compiled by the research service Morningstar.
What do you think: are these reality checks the necessary reining in of tech companies that are too big for their britches, or the sign of a tech bubble about to burst?