So-called “unicorn” tech companies valued at over $1 billion by private equity investors are becoming “unicorpses,” as only four Silicon Valley tech companies have managed to complete IPOs in 2016.
Breitbart News warned in December: “Party’s Over: Tech IPOs Collapse on Wall Street.” Despite a record year for new deals in 2014, when the Silicon Valley-dominated tech sector made up 25 percent of the market with 55 new tech IPOs, raising over $35 billion, there were only 24 new tech issues, raising a paltry $4.4 billion, in 2015, according to Renaissance Capital’s data base.
The total return from investing in all new tech IPOs dove from a profit of 21 percent in 2014 to a loss of 2 percent in 2015. That was over 3 percent worse than the 1.19 percent return for the S&P 500 Index with dividends reinvested.
But the average return on the 14 most high-visibility tech IPOs in 2015 was much worse. Investors that bought GoDaddy, First Data, Pure Storage, Atlassian, Match Group, Shopify, Square, Fitbit, Baozun, Rapid7, Apigee, Box, and Etsy in 2015 racked up an abysmal loss of 30 percent.
Breaking the tech IPOs down to their appropriate sectors reveals that companies focused on ecommerce plunged 31.6 percent, consumer deals tubed 29.5 percent, and B2B fell 28.9 percent, according to the mattermark blog.
Many Silicon Valley leaders have claimed that the wipeout in the tech IPO market is irrelevant, because the best tech companies, such as the 131 “unicorns” that report having billion-dollar-plus private equity valuations, will still be able to raise all the cash they need through private venture capital deals.
But big private equity player Morgan Stanley on Feb. 26 marked down by 32 percent the value of their private equity stake in Palantir Technologies, an intelligence analytics firm that had been appraised at $25 billion as the fourth-most-valuable unicorn. Morgan Stanley also gutted two other unicorns by slashing values by 25 percent for San Francisco-based Dropbox and 27 percent for India based Flipkart.
According to Wall Street analyst Chris Martenson, there is a compelling argument that the lack of tech IPOs will quickly shrivel the cheap cash that drives Silicon Valley. He expects the tech industry to suffer a wave of mass layoffs that could be much “worse today than back in 2008/9.”
Martenson suggests that during the Great Recession that began in 2008 with the Lehman Brothers bankruptcy, most Silicon Valley engineers and tech support workers that were “down-sized” could seamlessly transition to the “fast-expanding private future behemoths such as Facebook, Palantir, Uber and the like. Even established tech names like Google, Netflix and Amazon continued to invest heavily in growing research and development during that recession.
This time around, the values for private tech unicorns are crashing just as fast as public companies. With Breitbart News reporting earlier mass tech layoffs already accelerating, Silicon Valley could soon be littered with mass “unicorpses.”