Tech May Be In for a Rude Awakening as Fundraising Drops, Layoffs Rise

Tory Patterson, co-founder of Owl Ventures, which invests in ed tech start-ups. Credit Elizabeth D. Herman for The New York Times
Tory Patterson, co-founder of Owl Ventures, which invests in ed tech start-ups. Credit Elizabeth D. Herman for The New York Times

Is tech in for a rude awakening this year after a magic carpet ride the past few years? 

The numbers, and recent actions by once high-flying start-ups, would seem to suggest so.

Consider: Mega-rounds, defined as funding of more than $100 million for venture capitalist-backed companies, are in free fall. The rate of private start-ups attaining unicorn status — a valuation of at least $1 billion — are grinding to a crawl. Friday layoffs at tech start-ups, deemed Black Fridays, are increasing. Bellwether tech stocks such as Apple, Google, Facebook and Amazon have been taking it on the chin.

“It’s a time to recalibrate — so many companies can’t burn extraordinary amounts of money forever,” says Sunil Panel, co-founder of Sidecar, a pioneer in the crowded ride-sharing space that shuttered operations on Dec. 31.

Last year, Silicon Valley projected unbridled swagger. Today, “there is definitely an era of reckoning,” says Chris Sacca, a venture investor with stakes in Uber and Twitter. “Reality is setting in.”

A report from PricewaterhouseCoopers and National Venture Capital Association underscores the chasm: While last year was the second-best in two decades for venture capital investments, at $58.8 billion, the fourth-quarter figures marked the smallest amount amount invested since Q3 2014 ($11.3 billion).

Tom Ciccolella, PwC’s U.S. venture capital lead, says the decline in mega-deals is the first clear sign of a tamped-down market for funding. The slowdown began late last year, according to several market researchers.

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Source: USA Today | Jon Swartz