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As Silicon Valley Crumbles, Unicorns Are Disappearing

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Is it the era of the startup unicorns? According to specialists, the decade between 2008 and 2018 where startup owners became billionaires is over.

WeWork and Airbnb’s IPO failed, other signs – such as the loss of trust in the pioneer GAFAMs can only confirm that investors are switching to more traditional behaviors. 

playbook 2019

According to a study published by Bloomberg, investors mainly want profitable companies, which has not been the case for many unicorns. 

While financial prudence becoming the new policy, it seems that it will be harder for new tech entrepreneurs to grow their business and find investors. 

Unicorns are losing money

Times are changing for big tech companies. As several specialized media report, this year has reached a milestone: “never before have so many companies with such high revenues gone public at such lofty valuations, all while sustaining such massive losses.”, explained Crunchbase.

As a matter of fact, IPOs have become less and less attractive for investors as growth has been stalling. As startups are constantly in need of money, even the most successful ones have created worries among investors.

Lately, the three top tech companies, Uber, Tencent and Pinterest have shown worrying signs for investors. For example, Uber Technologies Inc. has shown more than $3 billion loss in 2018, for a $11.3 billion revenue, which scared off investors.

“With a market cap hovering around $64 billion, Uber is far below the $120 billion it was initially rumored to target.”, highlighted Crunchbase.

A second dot-com bubble?

To some extent, the high-tech industry might live a second dot-com bubble burst just like it did in the early 2000s.

There are several similarities: tech companies have been spending tremendous budgets on advertising and promising world-changing technologies, just like the ones in the late nineties.

Moreover, thousands of jobs were cut right after a phase of euphoria among unicorns – WeWork is the most prominent example, confirming it would cut more than 3,000 jobs.

Last but not least, tech companies valuations have heavily fluctuated, such as in the late nineties – for example, “WeWork’s valuation fell more than 80 percent pre-IPO”, reported The Atlantic.

Read on Alvexo: “Wall Street and Silicon Valley are over with IPOs”

Where are investors going?

As the 2020 recession seems to be a more and more plausible scenario everyday, investors  fear a possible high volatility for next year.

According to a survey published in USA Today, 79% of more than 3,400 high-net-worth investors are putting their money on safer products, such as bonds – while 25% of them have assets in cash.

According to Morningstar, investors took back about $60 billion out of stock funds in the third quarter of 2019. This represent the biggest net outflows since 2009.

playbook 2019

 

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.