The new cover of Fortune magazine features a compelling image. A herd of unicorns is rushing to an exit that unfortunately for them is too narrow for all but a few to get through. The symbolism is clear. In what our story calls “Silicon Valley’s $585 billion problem,” the vast majority of these so-called unicorns—private companies valued by their investors at more than $1 billion—will not be able to go public at anywhere near their last valuation, if at all.
The half-a-trillion-plus-dollars figure is the value of the 173 unicorns we counted, according to investors in the companies. We also report that private investors have pumped $362 billion into startups in the past five years.
The problem here is twofold. First, the IPO market, long a rigged game according to the telling of veteran financial journalist (and one-time investment banker) Bill Cohan, stinks. If the IPO market stinks, it’s tough for these overinflated unicorns to go public. Then there’s the market itself, which is even smellier of late. Lower valuations across the board, even for tested companies, are horrible news for untested, bubble-inflated wannabes.
As for what happens next, I’m more optimistic than most. To be sure, there will be a lot of pain. Many of these company will simply vanish. It happens every cycle, and this one will be no exception. Many will raise more private money at lower valuations, so-called “down rounds,” which will deeply hurt employees, founders and some earlier investors. Steven Davidoff Solomon covers this landscape here. (He also has a nice line about what happens when “unicorns instead become donkeys.”)
Perhaps surprisingly many others will go public after all, and they’ll have their maligned investment bankers to thank for that. For decent companies, of which there are many, there is a price at which public investors will want their shares. They’ll pay the bankers their fees, collect capital from mutual funds and retail investors, and live to fight under happier market conditions.
The age of the unicorn is about to end. The cycle of innovation, financing, growth, disruption, and wealth creation and destruction is going strong.
Adam Lashinsky @adamlashinsky adam_lashinsky@fortune.com
BITS AND BYTES
Verizon beats expectations. The biggest U.S. telecommunications company added more than 1.5 million customers in its December quarter on its way to revenue of $34.2 billion. Verizon didn't release specific metrics for its new Go90 mobile video app, meant to counteract razor-thin profits in the cutthroat wireless services market. (Re/code, Bloomberg)
Intel puts $100 million into Chinese joint venture. Under a pact with Tsinghua University and Montage Technology Global Holdings, the chipmaker will oversee the creation and commercialization of a special computer server microprocessor that monitors for "specific local requirements." Observers view the arrangement as a way to appease Chinese officials over cyber spying. The chips should be available starting in 2017. (Wall Street Journal)
Forget those Twitter buyout rumors. Rupert Murdoch's News Corp. has denied reports that it plans to buy the social network. Twitter's stock, which has plummeted 41% since October briefly touching record lows on Wednesday, rose more than 4% to $17.38 on the speculation. By the way, CEO Jack Dorsey's "other" company Square has also been hard hit by the tech stock correction. Its stock is down 28% this year. (Reuters, New York Times, Wired)
Citrix's new CEO is former Microsoft exec. Kirill Tatarinov, whose tenure officially starts Jan. 25, was one of four high-level Microsofties to leave during a June 2015 management shakeup. Long-time CEO Mark Templeton retired from Citrix last year. Executive chairman Robert Calderoni has been covering, but the software company is under pressure from activist investor (and EMC nemesis) Elliott Management to sell pieces of its business. (Fortune)
Could Sharp find white knight in Foxconn? The Taiwanese contract manufacturer, best known for making iPhones, has offered more than $5 billion for the struggling Japanese electronics company, according to reports from Bloomberg and the Wall Street Journal. Sharp, which is also big maker of smartphone screens, is already considering a lower bid from Innovation Network Corp. of Japan. The company needs help with more than $4.2 billion in debt. (Fortune)
Exclusive: IBM eyes video streaming company. The tech giant is considering a $130 million buyout of Ustream, which sells a live cloud-hosted video service that can be used for business collaboration or for Watson analytics applications, according to multiple sources close to the deal. The two companies have been partners since April 2014. (Fortune)
Deals galore in the cybersecurity sector. FireEye, which makes appliances that protect computer networks, will pay at least $200 million to buy threat intelligence company iSight Partners. (Its last major acquisition was incident response specialist Mandiant.) Plus two sizable financing rounds were disclosed Wednesday morning: $50 million for detection company Malwarebytes and $76 million for security management company ForeScout. (Fortune)
THE DOWNLOAD
Oracle exec: All our apps will be cloud apps. The database-and-applications giant is treading a fine line in its conversations with big customers that run its business software in-house. Sure, it will continue to support legacy applications—things like E-Business Suite, Hyperion, and Siebel that run on customers’ servers. But, going forward, Oracle fully expects all of those applications—100% of them— to move to the cloud. Its latest revelations came during a New York event, where Oracle's chief of cloud development Peter Magnusson also offered some pretty tough criticism of rival Amazon Web Services.
IN CASE YOU MISSED IT
Oracle jabs again in legal fight with Oregon by Jonathan Vanian
GM embraces car-sharing by Kirsten Korosec
Crowdsourcing Apple's earnings by Philip Elmer-DeWitt
Airbnb runs "illegal hotels," industry study claims by Christopher Elliot
Coming Friday to online sites near you: Apple's pricey Hermès smartwatch by Don Reisinger
Boosting tech diversity, with Magic Johnson's help by Andrew Zaleski
Virtual reality shines light on illiteracy at World Economic Forum
by John Gaudiosi
ONE MORE THING
Silicon Valley gets political. As arguments over digital privacy and encryption escalate, tech companies are asserting their views more aggressively than ever. Get acquainted with Wired magazine's list of the top 20 political influencers in tech—ranging from Linda Moore, CEO of lobbying group Technet, to Eric Schmidt, executive chairman of Alphabet. (Wired)
This edition of Data Sheet was curated by Heather Clancy:
| @greentechlady | |
| heather@heatherclancy.com |
