Name: Fact or Fiction: Are tech Unicorns at risk of losing their horns?
Uploaded: 2015-08-28
Duration: 5 min 49 s
Description: Fortune’s Andrew Nusca, Erin Griffith and Max Wolff, partner and chief economist at Manhattan Venture Partners, tell how Wall Street's turbulent ride this week may affect tech startups.

[ MUSIC ] This is very easy. We're going to play a game here. It's called Fact or Fiction. I ask you a question and you hold up your card, Fact or Fiction. Ready? Here we go. Fact or fiction, venture capital money is going to dry up like California in a drought. Fact or fiction? Wow okay, Max why? Because there's so much money chasing what everyone hopes are these big unicorns of great opportunities that while it will fall a bit, it won't dry up as badly as poor California has been wrestling with. Okay, so you're not worried? I'm definitely very worried. [ UNKNOWN ] Okay. I just don't think we're going from on to off. I think we're going from torrent to trickle. Got it. Okay Erin, what about you? I mean, I think that the public markets are still a little bit removed from a lot of these unicorns. They're not even really anywhere close to going public, at least most of them. And so what happens there doesn't really affect the private markets for a long time. We had this same problem a year ago where there was a little bit of a market blip and everybody freaked out like startups you need to raise as much money as you can And they just kept raising more and more and more, and nothing happened. But Andrew, there are a whole lot of them, right? Right. Right. There are well over 100 at this point. I think, for me anyway, the big ones are totally fine, but the smaller companies might have at least a little bit reason to be worried. Okay. Question number two. Fact or fiction? This may finally force startups to get serious about profits. Erin, I'll start with you. Actually, hold your cards up. I'm sorry. I don't know the rules to the game. Andrew, we'll start with you. Fiction. Yeah, no, I think a lot of these companies have made it clear that they're still in growth mode. And when you're in growth mode, you can't just suddenly turn to profits, you have to Build the business to where it needs to be before you start collecting. So you don't think the rules will suddenly change. Exactly. Okay, Erin what about you? Well, the problem. You do? Yeah, I do think that people are starting to think a little bit more about this because they're looking at the companies that have gone public, like Fitbit or Etsy. And maybe they're not really profitable or investors have sort of lost their excitement for them. And they're thinking, okay, if I wanna go public, I'm gonna have to have a lot of profits and a lot of growth. So maybe they're Sort of recalibrating a little bit and trying to get profitability faster. And Max, you agree? Yeah when people don't perceive a lot of risk, this storying sweeps them off their feet. And then once they start thinking about their long term future, they want to know more than just the romance, they want to know the earning and I think that's gonna come back into vogue real hard, real fast in the next six to 12 months. Well, this brings me to my next question. Fact or fiction? A prolonged downturn could actually be good for Silicon Valley. Fact or fiction? What do we think? Okay, middling. Erin, why? Why so- so? I think it's a little bit more Still, it's not quite as black and white as that. I think it could definitely help. There's a lot of froth, there's a lot of excitement, there's a lot of irrationality happening right now. But also a lot of this stuff is good. It's creating innovative things. So I think there's a pro and con to that. Okay, and Max, what do you think? I think if you spent your time preaching creative destruction, you have to be ready for the destruction as well as the creative and otherwise you look a little bit like a hypocrites [ INAUDIBLE ] other people's money Well said, and Andrew there could be opportunities come from times like this, right? For me, it separates the wheat from the chaff. I mean you're going to, when you have a shake out like that you're going to see who's really worth the money. And there's a lot less competition around so that's another thing Exactly Okay, so fact or fiction, some current unicorns will lose their horn, i. e. see their valuation Throughout. Fact or fiction, this is a big one. [ SOUND ] " Fact, fact, fiction ". Okay, Max, why do you think that's gonna happen? So I don't think most of these guys are gonna end up as glue horses. [ LAUGH ] But a whole bunch of them are gonna end up as horses that aren't so magical without the stick on their head that. Some of them got there by reasons not so obvious. So, yes, not most, most will be fine. Do you want to name one? Can I put you on the spot? I'm not going to name one right now, because I have enough enemies. But, there'll be more than one. Erin, do you agree? Yeah, I think there's definitely some that we've already seen that people are kind of whispering about. You know, raising down rounds, or maybe unable to go public, and they might have to sell for less than they're worth. I think everyone's kind of expecting that. It's just a matter of when and how many. Will you name one? Oh man. Well Fab is one that we all saw happen. We saw that already. Okay. Yeah. That was a good save. Okay Andrew and you actually disagree with this. Yeah, no I think for the most part. I'm not gonna be black and white about this. There are a couple that are gonna kind of, their evaluations will lower. But I think By and large, they'll be roughly the same. Okay, this is our last question here. Fact or fiction, it's hard for new companies to innovate when funding is scarce. Fact or fiction? Erin, we'll start with you, fiction. Oh, I think you can actually argue that a lot of innovative companies have come without funding because it forces them to be lean and it forces them to sort of be creative. And when you have a lot of money, even though you're saying oh, we're not spending it, or we're saving it for a potential downturn, you're going to spent it a little bit and so I think a lot of these companies are getting bloated, they have the nice offices, it creates this appearance of success before they're actually a real success. And Andrew you agree? Less focus on the climbing wall is a good thing? I think to your point, some of the greatest technology companies of all time were founded in periods of distress and I think that And those were Google, Facebook Microsoft even, I mean these were not Great times for the economy. I think, when you look back, good times like we're experiencing now just make it easier to get money. But the competition's far stiffer. And Max, we'll give you the last word because you're disagreeing. Yeah, so I do think you need money. However, people who get into this business and the startup business, the innovation business for the money are usually terrible innovators. And people who do it for the passion. And are a little less driven by money are the best of the best. So, could go either way, but still armies march on their stomach as much as their dreams. Well said. Well do we all agree that this is gonna be very, very interesting to watch for the next, I don't know, three, six months. Maybe longer? Fact? Fact! Great, excellent. We all agree. Thank you for being here. [ MUSIC ]

Fortune’s Andrew Nusca, Erin Griffith and Max Wolff, partner and chief economist at Manhattan Venture Partners, tell how Wall Street's turbulent ride this week may affect tech startups.