One month ago, Fidelity started a firestorm in the venture capital community when hot on the heels of recent downward revaluations of such pre-IPO unicorns as Dropbox [4], and Square [5], the world's second largest mutual fund (which had previously been accused of venturing where it shouldn't by buying stakes in private-stage companies [6]and subsequently having to value them on its own) took an axe to some of its private company investments, in this case slashing the value of Snapchat, the fifth highest valued "unicorn", by 25%.
This is what the FT said at the time [7]: "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, according to data from investment research firm Morningstar. 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."
The FT's spot on punchline: "It is unclear why Fidelity marked down its stake" adding that Snapchat is still searching for a sustainable revenue model. Clearly one can see why there is so much confusion over what its "value."
However, Snapchat is not alone among the realm of "unicorns" or companies valued at over $1 billion that is "searing for a sustainable revenue", let alone profit, model.
We added that it is also unclear "if other Snapchat investors, such as VC titans Benchmark and Kleiner Perkins, as well as tech companies Alibaba, Tencent and Yahoo have followed Fidelity into what is becoming a widespread realization that not only was there a private tech bubble, but that it has now burst."
We doubt the answer was, or is, yes, adding that "a bigger question is whether it will be a controlled demolition as unicorns everywhere are demoted to what we first dubbed "zerocorn" status in the coming days. To be sure, the VCs are desperate for a controlled demolition, and hoping the broader market ignores the euphoria that took place in Silicon Valley over the past 3 years, is now over, and that giddy investors overshot by at least 25-35% to the upside in the past several private funding rounds as everyone was rushing to pass the valuation hot potato to ever greater, and richer, fools."
Aiding with this much-needed "controlled demolition", earlier today Bloomberg reported that in a move that will surely raise even more eyebrows if not launch a shockwave across Palo Alto just yet, Fidelity Investments said in its monthly holdings report that it has slashed the valuations of even more unicorns, starting with the biggest one of all, Uber, when it lowered the value of its stake in the company's Series D shares by 7.5% from Oct. 30-Nov. 30, while adding more pain to Dropbox investors when it lowered its value of the cloud service company by another -2.2%.
It wasn't all bad news: Bloomberg reports that Fidelity's valuation of BOX gained 12% while Twilio's pre-IPO value rose by 31% as it prepares to go public.
Still, the question remains: is this Fidelity trying to facilitate a smooth landing from the bubblesphere in what is now a burst "unicorn" bubble, or is the asset manager simply trying to reprice values to reality ahead of what may be a very unpleasant, for private companies which are still valued at stratospheric levels, 2016 especially if some or all of them scramble to find a public exit.
If the answer is the former, then as we concluded a month ago, it remains to be seen how successful they will be, and just what the source of capital for hundreds of "$1+ billion"-valued, cash burning companies will be in lieu of generous VCs, and just how viable the second tech bubble will be if these hundreds of companies suddenly are forced to generate cash flow to fund themselves.
In any event, no matter what the basis for the repricing is, there will be a whole lot more of it because as the WSJ kindly reminds us, as of today there are at least 143 private "unicorns" valued at $1 billion or more.
For the full list click on the image below.
[8]
