Are investors getting edgy about high-growth firms? The fairytale story of unicorn after unicorn - those firms valued at $1bn upwards - was a badge of honour for start-ups. Now it seems, it may be serving as a warning sign to investors.
Fidelity Investments’ latest move won’t reassure those who fear the prospect of a tech bubble bursting. It’s just cut the valuations on many start-ups in which it owns shares, with Cloudera and Dropbox taking notable hits. They had the value of their shares cut by 28% and 20% each from the end of January to end of February.
Dropbox, which allows people to share photos and documents, has been trying to move from consumer sales towards a focus on enterprise ones, but has run into difficulty with key products floundering.
And Fidelity isn’t the only company putting the brakes on when it comes to start-up valuations. BlackRock, T.Rowe Price Group and Wellington Management have also said that 13 of the unicorns they own are worth 28% less on average than what they paid for. Each of the four funds own upwards of 40 unicorns each.
As unicorns are private, investors often look to the likes of mutual funds for tip-offs and Fidelity's valuation report will be another setback to high-growth start-ups. It'll probably make it trickier to raise funding at higher valuations and could also make attracting talent more of a challenge, without such alluring stock awards.
Those who have been expecting a startupocaplyse will see these latest developments as a sign we are approaching the end of days, but there's no need to rush out and buy a fall-out shelter just yet. Private tech firms have just enjoyed a massive run of funding and it's only natural that some are starting to disappoint. The likes of Airbnb and Uber are more valuable than ever. A few valuation cuts could could be just the antidote an overheating sector needs.