Is Snapchat's flat valuation an ominous sign for Silicon Valley?

Nobody can agree whether investors' caution is because the tech bubble is about to burst.

by Rebecca Smith
Last Updated: 20 Jun 2016

What goes up must come down, so the saying goes, but the who’s who of Silicon Valley can’t seem to agree if this applies to the tech start-up market. Uncertainty over whether a bursting tech bubble is all but imminent has been rife for a while, but recent incidents have reignited the debate.

Photo messaging app Snapchat has just raised another $175m (£124m) chunk of funding from financial giant Fidelity. Which seems like a pretty impressive amount, but what’s got people talking is that the investment valued Snapchat at $16bn – the same as its previous funding round last March. It’s not a huge surprise since Fidelity marked down the value of its Snapchat stake by 25% towards the end of last year. 

It's surely a little knee-jerk to claim this heralds the tech start-up apocalypse, but it is a sign of increasing investor caution towards what have been some of the most promising companies in the tech sector. Silicon Valley might like to think this sky-high growth in valuations can go on and on, but it’s just not sustainable in the long run.

Flash back to a year ago and investors loosened their purse strings for their pick of rapidly growing start-ups, throwing out billion-dollar valuations aplenty. The current sentiment is much more tentative as many high-profile firms such as Zenefits have been making job cuts and a number of mutual funds have been marking down the value of their investments in private tech start-ups.

According to The Information, Morgan Stanley for example reduced the value it had assigned to investments in file hosting service Dropbox, ecommerce firm Flipkart and big data company Palantir. Other tech companies like Jawbone and Foursquare are raising so-called 'down rounds', taking money at a lower valuation than their last fundraising.

To realise how divided current opinion is, just look at the response on social media to a report from industry research firm Mattermark. It said VC deals were up during the first two months of 2016, which soon caused debate and disagreements among VCs, industry analysts and start-up execs.

Those closest to the action might find it more difficult to see the wood for the trees, but if there's one thing Snapchat’s news has done, it's highlight the level of uncertainty and unpredictability about the current state of the tech industry and its future. The answer isn't clear but if caution prevails then unicorns may become much rarer - if not an endangered species just yet.

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