Boom With a View: Startup Markdownageddon

💥Boom with a View💥 is a column about startups and the technology industry, written by Erin Griffith. Some columns are commentary; others are a compilation of links, Tweets, and charts. Some are both. Others are neither. Find them all here: fortune.com/boom.

Over the weekend the Wall Street Journal published a striking infographic of startup share price changes. The result looks a lot like what you’d see from publicly traded companies on Yahoo Finance. Some share prices are up over time. Some are down. Some are just flat.

A chart like this is the last thing that privately funded startups, which raised that money specifically for the purpose of staying private, want the world to see. Startups rely heavily on momentum and hype to get through the early struggles of figuring out how to turn their (presumably) innovative products into real businesses. Even the tiniest markdown in their share prices can seem devastating. It’s markdownageddon.

Before markdownageddon, startups could make mistakes privately, miss targets privately, and lose top executives privately. That’s no longer the case. Today, startups’ mutual fund investors openly mark down their shares. The press jumps on the narrative. Overnight, a rocket-ship startup begins to sputter.

But markdowns from mutual funds don’t mean that these startups are actually doomed. We don’t know exactly which factors mutual funds use to determine the value of their holdings. It’s typically a blend of whether the startup is meeting its (ambitious) financial targets and what kind of growth the startup is forecasting for the future.

But one big factor is the financial and stock performance of public market “comps,” or comparable companies. That creates a tricky conundrum: If a startup is truly innovative, it might not have any direct “comps.” Or worse, it might be disrupting the very companies that are dragging down its valuation. Consider the way broadcast media company stocks are getting hammered because they’re losing out on young audiences. Meanwhile Snapchat, a company that’s the stealing young audiences from those very media companies, has been marked down.

Startups may be freaking out about markdowns, but as long as they’re private, the lower valuations are just as superficial as their billion-dollar “unicorn” status. It’s all paper money until they go public or sell.