For the last few years Silicon Valley has been the darling of venture capitalists looking for the next big thing. The result has been huge investments and valuations for companies that often come with whimsical names (Think Twilio and Sprinklr). The rise of mobile has contributed to the belief that there should be and “app for that”, and paved the way for companies less than 10 years old to become part of the billion dollar startup club. But that seems to be coming to an end.
At least, that is what the data shows anyway. Since the end of 2015, venture capital has been pulling back on investing in Silicon Valley unicorns. Unicorns are Silicon Valley companies with valuations of a billion dollars or more. Funding fell 8 percent to $25.5 billion, extending a steep decline that began the quarter before, according to a report released Wednesday by KPMG, an accountancy, and CB Insights, a venture researcher.
“There’s a lot of cautiousness out there,” says Kerry Wu, an analyst at CB Insights. “It’s reflected in the data.”
What that data shows is the rate of new unicorn companies is slowing. In Q3 of 2015 there was a new unicorn showing up in the valley every four days. But by the end of 2015 that had tricked down to just 1 new unicorn that quarter. The report by KPMG points to a few key reasons for the slow down in venture capital funding.
- Too many unicorns A unicorn is a unicorn because its rare, but there have been so many lately that it may have driven the value down. When the value goes down, the money starts to slow because investors don’t see the next app as the best way to make money fast.
- Startups are still growing The unicorns that have received funding are continuing to get more, such as Uber. This is helping them to grow larger quickly. And spreading the money thinner for the new comers on the block.
- American funding is cooling off The total number of venture deals flatlined in the first quarter after plunging 15 percent a quarter earlier. The stagnation suggest that venture capitalist aren’t the excited to invest in this market.
- California startups aren’t as exciting Funding has fallen by 1.5 percent. It’s down almost half from the $12.2 billion raised in the September quarter. Although these numbers don’t indicate trouble, it does confirm the latest data that suggest that the tech economy is slowing down.
Article via CNET, 13 April 2016
Photo Startup by Dennis Skley [Creative Commons Attribution-NonCommercial-NoDerivs]