Will unicorns turn into 'unicorpses'? VC funding tells a cautionary tale
Investors are pumping the brakes in Silicon Valley. A new report indicates a slowdown in investments is continuing, with some hope for a rebound going into 2017.
Tech Industry
July 19, 2016
4:00 AM PDT
Erin Carson mugshot
by Erin Carson
@erincarson
siliconvalley.jpg
Caution is all the rage in Silicon Valley these days.
Getty
The hottest thing in Silicon Valley right now? Caution.
For the better part of the past 12 months, investors have been signaling their skittishness about the tech startup world.
A new report from consultancy KPMG and industry watcher CB Insights called Venture Pulse shows that the trend of caution could continue. That's based on indications such as how much money investors are willing to give to new startups, how many deals they're making and even how many companies are getting slapped with those eye-popping valuations in the billions of dollars.
At issue in that last case are unicorns, which are companies valued at $1 billion or more. In the third quarter of 2015, 25 unicorns got funded. The second quarter of 2016 saw just seven. Beyond lower numbers of unicorns getting funded, there's also concern that current unicorns won't survive if they can't get more money to keep going. The report offers some new potential jargon: unicorpses.
This doesn't mean that investors are keeping clamps on their wallets all the time. When they do invest, they invest in companies that are already doing well, like Uber, Snapchat and Didi Chuxing. Those companies are decacorns, or companies with $10 billion valuations. They're safer investments, in other words.
So why are investors squeamish?
"There's a lot going on with uncertainty dominant in every market. Many investors are holding back to see how these uncertainties shake out," said Brian Hughes, national co-lead partner for KPMG Venture Capital Practice and a partner for KPMG in the US, in the report.
Those uncertainties range from the aftermath of the UK's decision to leave the European Union, known as Brexit, to the upcoming US presidential election and general concerns about some of those astronomical company valuations. Basically, anything that could create a drag on the market and hurt investments.
After a year of curbing the cash flow, it's unclear if this trend will continue. There are a few areas, like artificial intelligence and virtual reality, inspiring investors to commit their money. The report says there may be a rebound waiting in the latter half of 2016 and into 2017 -- but there's no telling if that rebound matches some of the mind-blowing numbers we've seen in the past or stays a bit closer to the ground. |
