Once considered one of the most promising investments on Wall Street, the legendary title of unicorn—startups with a valuation of $1 billion or more—is becoming a name that ring alarm bells among investors.
Since unicorns are private, investors often take their cues from other sources, such as mutual funds. But increasingly, mutual funds are beginning to shear away at their ties to the startups and devalue their estimated worth—discouraging more funding, according to the Wall Street Journal.
That’s ominous news for the startups on a whole, who have been going through a seemingly unending golden age until a few months ago.
According to a Wall Street Journal article, mutual funds, who once helped finance the tech boom, are increasingly saying that their investments in several unicorns are now worth less than when they bought it.
BlackRock, Fidelity Investments, T. Rowe Price Group and Wellington Management, now say that 13 of the unicorns that they own are, on average, worth 28% less than they paid for, the Journal reported. Each of the funds own at least 40 unicorns each.
Among the 13 companies include messaging app Snapchat (which just raised $175M from Fidelity at the same value as a year ago), software maker Evernote, and scandal-hit health insurance broker Zenefits.
The four mutual funds bought just 10 new stakes in startups in the fourth quarter of 2015, in contrast to the 32 stakes bought in the second quarter, according to Dow Jones VentureSource.
Already, unicorns have felt a 30% cut in investments during the fourth quarter of 2015 from venture capital firms.
Those deep cuts in funding have led to layoffs and falling valuations. One of the latest being software company Zenefits which had to part ways with 17% of its workforce.
