Jackson News Reporter

Tech faces hour of reckoning as fundraising drops, layoffs rise

Tech faces hour of reckoning as fundraising drops, layoffs rise

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-highflying 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.most-active-in-tech

“It’s a time to re-calibrate — 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 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.

The number of mega-deals of at least $100 million — 38 in the fourth quarter of 2015 — was roughly half the 72 in the previous quarter, according to the KPMG International & CB Insights 2015 Venture Pulse Report. Mega-rounds in the just-completed quarter raised $11.4 billion — down 44% from Q3 2015 —the lowest level recorded since the first three months of 2013. More than anything, 2016 marks a “shift to entrepreneurs valuing quality investors over optimized evaluations,” says Joe Horowitz, managing general partner at Icon Ventures.