Is the Silicon Valley funding well drying up?

18 Dec 2015

The pace of Silicon Valley’s explosion into societal consciousness, its shift from mild irrelevance to primary industry hub, may actually be grinding to a halt, with funding floundering below the surface.

The money pouring into tech companies has gone through various stages, with the modern tale starting with mid-1990s speculative investors and peaking when Wall Street started eyeing up slices of the Silicon Valley pie in more recent years.

Now, according to a report by CNBC, the next stage may be far more frugal. That’s because numerous companies below the top tier in tech are undergoing some significant reevaluations and the trend appears to be heading in one direction.

Take Dropbox, for example, which recently had to move away from two of its originally enthusiastic services, which many feel is a way to proposition themselves as a more attractive avenue for investment. Similarly focused new businesses like Box and Pure Storage, too, are seeing their valuations falter.

Cumulus Networks, Datadog and Zenefits are three other businesses noted by CNBC as under relative threat from this new norm.

“It’s a tale of two cities,” said Asheem Chandna, a partner at a California VC firm. The top-tier companies see plenty of investor demand, “but if you take the broader market beyond the top 10 to 20pc it’s fair to say there’s an adjustment happening,” he said.

Silicon Valley, a new age

Back in October, rumblings were growing about the slow death of unicorns (start-ups that are valued above $1bn), well, more that the slow death had already started and was coming to a speedy conclusion.

The warning signs were everywhere earlier this year when venture capitalists were betting anyone in the world $100,000 that their growth predictions would come true.

“I’ve realised the odds that my own start-up will capitalise on one of the biggest run-ups in valuations of the past two decades is unlikely,” countered Mattermark’s Danielle Morrill in October, speculating that a vast reduction in funding was well underway.

And, according to this latest report, that’s certainly true. VCs are essentially wary of companies that run at a loss, burning capital to begin with. The problem for Silicon Valley is that, well, there are plenty of them.

How many businesses have you heard of in recent years that went three, four, five or more years without turning over a profit? If that never made sense to you before then now, perhaps, VCs are feeling the same way.

Well image via Shutterstock

Gordon Hunt was a journalist with Silicon Republic