First it was Dropbox.
In late October ago we reported [6]that one of the numerous "unicorns" prancing around Silicon Valley was about to have a very rude wake up call when Dropbox was warned by its investment bankers that it would be unable to go public at a valuation anywhere near close to what its last private round (which had most recently risen to $10 billion from $4 billion a year ago) valued it at.
Than it was Jack Dorsey's "other" company, Square (which soon may have a higher valuation than Twitter).
In early November we wrote that [7]"another company realized just how big the second "private" tech bubble, one we profiled first in January of 2014, truly is. That company is Jack Dorsey's Square, which earlier today filed a prospectus in which it said that the "initial public offering price per share of Class A common stock will be between $11.00 and $13.00." Assuming a mid-point price of $12 and applying the 322.9 million shares outstanding after the offering, it means a valuation of $3.9 billion. The problem is that in its last private fundraising round, Square was valued at about $6 billion..."
Then, one month ago it was the turn of Snapchat [8], the fifth most highly valued private tech start up.
According to FT [9], "Snapchat has been marked down by one of its most high-profile investors, raising further questions about the soaring valuations of private technology companies. Fidelity, the only fund manager to have invested in the four-year-old company best known for disappearing photos, wrote down the value of its stake by 25 per cent in the third quarter. It had valued each share at $30.72 at the end of June but dropped the valuation to $22.91 by the end of September."
Fast forward to today, when the latest semi-unicorn to drop like a fly was none other than Foursquare, a company which makes apps that do something that most other apps already do as well if not better.
Actually make that Twosquare, or rather Oneandathirdsquare, because according to ReCode [10], the company is close to finalizing a funding round that will see the company's value plunge to $250 million, almost two-thirds less than the $650 million it was "valued" at two years ago.
ReCode, which explains that the startup "makes apps that let you find local restaurants and stores and “check in” to them" adds that the company has also talked to potential buyers. So it could still conceivably sell instead of finishing up the funding, which should raise at least $20 million and as much as $40 million. Or, conceivably, it may do neither if investors realize that now that the tech bubble has burst the only way they "get out" is without another down round in 6-9 months, because unfortunately just like virtually all other tech bubble 2.0 names, this one has zero hope of ever generating a profit either.
According to ReCode, at least one new investor will participate in this round; previous investors include DFJ Growth, Microsoft, Silver Lake Partners, Spark Capital, Union Square Ventures and Andreessen Horowitz.
Most importantly, in 2013, Foursquare raised $35 million in a round that valued the company at about $650 million. We can't wait to see if after the 2017 valuation round, the company will have a "zero dot" prefix ahead of the number of pro forma "corners."
The good news for the late stage investing idiots who inflated this particular tech bubble in hopes even greater idiots will emerge, is that unlike "luxury online retailer" Gilt Group which is trying to go public at a quarter of its recent private round valuation, Foursquare has raised less, or $121 million, than its so-called valuation. Then again, throw in one more downround, and 4Square will also have raised more in cash than it has in equity value.
How did this collapse happen? ReCode tells the story:
Foursquare, which used to be one of New York’s buzziest startups, launched in 2009 as a social service that let you tell friends what bar or restaurant you were hanging out at — the same concept as Dodgeball, Foursquare CEO Dennis Crowley’s previous company. Foursquare eventually evolved into an ad-supported service that was meant to help you find places to eat, drink or shop, and last summer Crowley said the company had 50 million active users.
But while Crowley has said Foursquare could make real money from advertising, its growth has never matched its valuation, a reality the company and its backers are now tacitly conceding.
Crowley has also spent the past few years talking up the company’s data assets, accumulated via its users’ travels. That data could theoretically be valuable to a big platform company like Microsoft, which has already invested in Foursquare, or Twitter, which is already using Foursquare to power its location function.
But we thought Twitter was hoping that Four Square (or Microsoft) would buy it? This second tech bubble sure is getting confusing.
Luckily, even if Foursquare meets an untimely demise sooner rather than later (and considering its "cash flow", make that sooner) when its potential investors finally realize they are throwing lots of good money after even more bad money, the entrepreneurial spirit will be alive and well, concocting of the next great idea such as this one:
[11]
The good news, sarcastically of course, is that as the WSJ reminds us [12], there is a whole lot of this kind of "greater idiocy" still to go.
[13]
[14]
And then there's this
