back to article Rocky times for startups: Mutual funds devalue and VCs turn off money hose

Silicon Valley startups are facing a tough quarter as funders wait to see if a tech crash is on its way. Tech stocks have taken a battering this year, doing far worse than the overall market, and there have been numerous signs that the ludicrous over-valuations of tech companies – especially the so-called "unicorns" – are …

  1. Crazy Operations Guy

    "But the bluster of Silicon Valley, combined with the fact that no one loses and everyone gains"

    Except the general population. These tech companies are causing the cost-of-living in the Bay Area to soar. The population of employed, yet homeless, people is growing rapidly. The problem stems from all of the overly-valued tech start-ups that are paying their talent $150k a year, but blue-collar workers are still getting their old wages. As the number of tech workers increase, so does the demand for luxury real-estate and decreasing the amount of affordable housing. Its even gotten to the point where a dual-income family can no longer find affordable housing in the Tenderloin district, an area generally regarded as a complete shit-hole (To use a technical term), even Oakland is slowly becoming too costly for people.

    1. Nate Amsden

      Re: "But the bluster of Silicon Valley, combined with the fact that no one loses and everyone gains"

      $150k a year isn't much in SF for household income at least. Maybe $150k a year if a couple and both are working.

      I'm moving away from the bay area in the next couple of months(going to Modesto). Get a bigger, apartment (about the same kind of quality I have now), for half the cost(I pay $3k/mo for rent now very nice apartment around 830 sq feet, new place is over 1,200 sq feet for half). I know SF is much more. I work from home 99% of the time anyway, and my position is stable with my company, my company isn't going anywhere anytime soon so I don't need to be here right now, but I want to be close by in case I change my mind.

      I moved here 5 years ago to be near the tech scene(was in Seattle area previous 10 years, the state of tech up there gives me no reason to return at this time), still glad I made the move but now time to shift a bit east.

      as for the tech startups etc -- burn baby burn.

      - ops guy myself

    2. Nick Kew

      Re: "But the bluster of Silicon Valley, combined with the fact that no one loses and everyone gains"

      So you have a touch of the London sickness, but is it anything new there? It's fully 30 years ago I was dangled the promise of north of $150k for an assignment elsewhere in California (OK, JPL in Pasadena) and told I'd need it to cover the rent. Never happened 'cos the company in question messed up, but I still recollect the staggering money.

  2. allthecoolshortnamesweretaken

    Bubble, meet pin... time to offload all those Tulip futures.

  3. Nick Kew

    Just a month ago ...

    Just last month, the headline was Microsoft buys Swiftkey, with nice profits for its VC backers.

  4. gnufrontier

    Like Anything else

    I have no experience or inside knowledge of the VC business but that is only needed if one is actually doing that job. One doesn't need either of the former things to know that the dynamic of investment is no different than any other product that is bought or sold. Given the amount of money sloshing around the difficulty in getting returns (for many they don't need the money anyway but I guess old habits are hard to break) it is impossible that there wouldn't be inflation in valuations. One could say the same thing about a loaf of bread if the world's wheat crops failed. Which brings up the issue of what the real problem may be, a shortage of real innovation, a shortage of meaningful innovation. Innovation in tech gadgets and "connectedness" is at a dead end, it's mostly "me to". The future innovation is in genetic manipulation and more general purpose neural networks.

    1. Yet Another Anonymous coward Silver badge

      Re: Like Anything else

      The unicorn+VC model worked because one VC putting in money raised the value as far as all the other VCs were concerned - the actual business was irrelevant.

      They also had preference shares which guaranteed their profits - so long as they weren't the last one putting money in. I believe the system was described by the notable economist Ponzi.

      1. Anonymous Coward
        Anonymous Coward

        Re: Like Anything else

        I believe the system was described by the notable economist Ponzi.

        Bingo. Took the words out of my mouth.

        The current financing model does not aim to produce a working company which is available for investment to the general population on the stock market.

        It aims to produce return on investment for early investors at the expense of the next wave of investors all the way to the IPO and NOT beyond that. The last "wave" is guaranteed to lose massively (as in any Ponzi scheme).

        A SEC and IRS intervention is long overdue. Unfortunately, as this Ponzi scheme is what "drives the valley spirit" any attempt to do so is likely to result Diane Feinstein and Barbara Boxer donning hired killer catsuits, balaclavas and going for the SEC chairman's head. That is what they are paid for and they have been providing very good return on investment to their paymasters.

  5. Anonymous Coward
    Anonymous Coward

    A company is not 'worth' billions if it doesn't turn a profit

    Let's burst the DotCom party bubble like it's 1999

    1. Anonymous Coward
      Anonymous Coward

      Re: A company is not 'worth' billions if it doesn't turn a profit

      It produces it.

      For the ones investing in the first round at the expense of the ones investing in the next.

      It is called a Ponzi scheme.

  6. Kevin McMurtrie Silver badge

    Tonight we're going to party like... Hey, my free music disruptor is offline.

    I'm all for startups. They revolutionize technology, advance human civilization, and free us from lazy old monopolies. I'm just sick of every idiot claiming they are the revolution and nobody challenging the claim. Investors buy it then sell at a profit to a bigger sucker. Repeat as long as it looks like the game will keep playing.

    Well-funded companies that can never produce are what causes the insane prices around here. Spending money to do nothing ruins the value of money and it hurts the handful of startups that have crafted solid business plans.

    1. Anonymous Coward
      Anonymous Coward

      Re: lazy old monopolies

      Slick new monopolies to free us from lazy old monopolies.

      The unicorns burn capital to dump their services using predatory pricing. Once all the competition is wiped out, they jack up the price, turn the data-pimping up to 11, and screw their employees.

      Free market fundamentalism is BS. We need regulations to choke these Californian shysters to death.

    2. ecofeco Silver badge

      Re: Tonight we're going to party like... Hey, my free music disruptor is offline.

      Investors buy it then sell at a profit to a bigger sucker. Repeat as long as it looks like the game will keep playing.

      Here's the dirty secret: In order to sell your over-hyped no-profit white elephant tech company, you first have to know the right people. Almost all those no-name companies being bought for stupid amounts of money by brand name companies all have pretty much one thing in common: someone knew someone. The RIGHT someone and has known them for some time. Plus there may be internal brinkmanship at the brand name company that motivates the purchase as well.

      In other words, no matter how cool yours or my tech may be, we will never get rich like that because we do not move in the right circles, know the right people or have the right school ties.

      And thus it ever was. Sure, there are exceptions, but that's all they are. Rare exceptions.

  7. DainB Bronze badge

    Pixable

    Loving that example. We did, we wrote, we created, had a billions of views, blah blah blah, not a single mention of how exactly you planned earn money.

    p.s. Never heard about them until today.

  8. a_yank_lurker

    Basic Business 101

    How many of the unicorns and their relatives actually have a sound business plan that shows a realistic path to profitability in a reasonable time? I suspect very few have solid, workable business plans.

    1. Anonymous Coward
      Anonymous Coward

      Re: Basic Business 101

      For most of them, scamming investors is the business plan.

      1. Steve Davies 3 Silver badge

        Re: Basic Business 101

        The other one is to 'embiggen' the company so that a fairy godmother [1] comes in and buys the startup before the shit hits the fan and the house of cards falls down.

        When the company is sold, the founders trouser a few million/billion and move on to the next project/scam.

        [1] The fairy godmother is a company like MS who has a habit of buying up small companies and wiping them off the face of the planet.

    2. ecofeco Silver badge

      Re: Basic Business 101

      Of course they have a business plan: pump and dump!

      You mean it isn't obvious?

  9. ecofeco Silver badge

    The new bubble is almost over?

    So Web 2.0 is almost over? Thank god. Has this been posted on InstaFacebookTwittergram yet?

  10. Yet Another Anonymous coward Silver badge

    What part of "venture" don't you understand

    "when you don't know what something's worth, you don't know whether you are getting a good deal or a bad deal,"

    Isn't that what you are paid the big $$$ for ?

    If you only want to put money in something where you know what it will be worth - buy 20year treasury bonds. But good luck charging 20% fees for that.

  11. Anonymous Coward
    Anonymous Coward

    The story hints at another perspective on 'unicorn' valuations -- it's all about VCs fleecing traditional investment vehicles.

    A "$1B valuation" doesn't mean the company is worth that much. It means that the VC structured their investment so that the company appears to be worth that much, and are hoping to get future investors to put money in at that valuation. At which point they will extract money and still hold a lottery ticket for an IPO.

    The outside investors are finally getting wise to the scam, which is drying up money everywhere.

  12. Anonymous Coward
    Anonymous Coward

    It's time to get out when you see the Goldman-Sachs Pump and Dump machine in action

    Link

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