The number of private tech companies valued at $US1 billion or more has surged so much this year that on average 1.3 so-called “unicorn” companies have been created every week in 2015, according to data from CB Insights.
But now it looks like winter is coming to Silicon Valley.
Fortune’s Dan Primack went to San Francisco this week and met with a number of people involved with unicorn companies with ballooning valuations.
He says the mentality of people in Silicon Valley is starting to change, and people are getting scared.
“As in the past, they are nearly unanimous in sentiment,” he writes. “The difference now is that their sentiment is fear.”
The past several years of raising too much, too high, too soon has run smack into a much more conservative investor ethos. Later-stage tech startups can still raise growth equity — and still lots of it — but not necessarily at the terms they were receiving just two months ago.
“This shift is only five or six weeks old, so most companies haven’t felt it yet,” a senior tech banker explains. “But I know of many companies who raised money at $US1 billion valuations last year that are now being told that, to raise money now, they need to take around $US700 million or $US800 million. Probably with some serious structure that protects investors, like ratchets, on top of it.”
There’s been a growing sense that the Fed could soon raise interest rates, and successful VC-backed tech sector IPOs have been few and far between. Just this week, flash-storage provider Pure Storage went public, but began trading below its $US17 IPO price, and closed the day at $US16.01.
It certainly seems like this is the beginning of the downturn in the private tech sector that VCs like Benchmark’s Bill Gurley have been yelling about for a year now.