Despite the Standard & Poors Stock Index touching a new all-time-high of 18,166.77 on July 8, Silicon Valley tech stocks are unchanged over the last two years.
Investors were willing to enthusiastically take greater risk last year in hopes of large upside returns by investing in California’s fabled Silicon Valley technology. But over the last 12 months, the broad S&P 500 Stock Index (IND: SPX) was up 4.85 percent, while the Bloomberg Silicon Valley High-Tech Index (IND: BSVX) was down by 2.96 percent.
Silicon Valley innovation and stock prices are driven by a vast pool of venture capital that is creating “everything from business software to cures for crippling diseases,” in the hope of taking companies public at sky-high valuations.
This time last year, the “Valley” was on fire. Venture capital investing had leaped by 50 percent from the first quarter of 2015 to the second quarter, as venture capitalists poured $9.1 billion into new Silicon Valley deals. That was the largest quarterly investment number since $9.3 billion at the height of the Y2K Bubble days of 2000, according to The MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association.
Tom Ciccolella, a U.S. venture capital point person at PricewaterhouseCoopers, stated in early July 2015, “People are getting funded all the way up the food chain.” He added, “Any aspiring entrepreneurs looking for money, they seem to be getting funding.”
By the start of 2016, there were 163 venture-backed companies valued at $1 billion or more, according to CB Insights’ real-time tracker. That “unicorn” valuation had been the level where VCs had traditionally looked to take companies public.
But for only the third time in two decades, no Silicon Valley tech company was able to complete a public offering during the first quarter of 2016.
With public market liquidity gone, one out of six VC-backed companies was forced to raise venture capital cash below their last funding valuation in what became unpleasantly referred to as a “down-round.”
The crash in VC enthusiasm over the last 12 months has spread from crumbling private start-ups, to depress the shares of established Silicon Valley public companies, like Apple Computer down -23 percent and Twitter falling -47 percent.
There were a few “Valley” winners, like Alphabet (Google) that spiked up by +35 percent and Facebook that jumped by +34 percent. But most established Silicon Valley companies saw little movement, such as Yahoo and Netflix are virtually unchanged.
Although the Bloomberg Silicon Valley High Tech Index is down -12.9 percent from its all-time high on May 22, 2015, there may be some hope for tech stocks after Twilio became the Valley’s first 2016 hot IPO on June 23.
With the Twilio IPO priced at $15 a share, the price almost doubled on its first day of trading. At about $36 a share on July 8, the Silicon Valley’s only “great hope” is up 140 percent in just a week.