Wall Street Isn’t Buying What Silicon Valley Is Selling

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A pretty good article in the WSJ today.

A summary

Private investments in six of the 10 best-funded U.S. tech startups to go public since 2015 have fallen from the peak levels they hit in funding rounds before the companies’ stock debuts, according to a Wall Street Journal analysis of data from research firm Pitchbook.

Uber investors paid an average of $48.77 a share between December 2015 and October 2018 for a total of $8.6 billion-one of the largest fundraising hauls ever for a startup.

Others whose per-share prices are lower as listed companies than at their private peaks include Snap Inc., SNAP 3.96% online storage company Dropbox Inc. DBX 0.13% and business-software maker Cloudera Inc. According to the Journal analysis, late-stage private investors in the six companies would have done far better investing in the broader stock market.

In a seventh company, Pinterest Inc., PINS 7.14% the value of a 2015 private investment has gone up, but only by about half as much as the Nasdaq.

Over the past half-decade, venture investors have pumped tens of billions of dollars into the largest startups, betting that stock-market investors would look beyond companies’ heavy losses and embrace their visions of industry disruption-a position that so far looks increasingly dissonant.

Food-delivery company DoorDash Inc. on Thursday announced new funding at a valuation of around $12.6 billion-nine times what it was a year ago.

Last week, European food delivery company Deliveroo announced a $575 million investment from Amazon.com Inc. and others.

Every few days it seems, the Silicon Valley startup machine elevates some new company to a valuation over $1 billion, often aiming for a rich IPO some years down the line.

Recent entrants include a company that makes luggage and another that handles drone delivery of medical supplies.

They’re more inclined to fill their portfolio with financially healthy companies that will perform well in the foreseeable future.

Amazon is often pointed to as a model of how companies that lose money early on can then turn a profit.

Today, companies are staying private for years longer, leaving it to private investors to fund their growth and make the risky early bets.

Public investors tend to want something more predictable by the time companies begin trading.

Despite the rough market debuts of some startups, venture capitalists point out that many of the companies are still wild successes for early investors.

Shares in software companies such as Twilio Inc. and Okta Inc., which serve businesses instead of less-predictable consumers, have soared since listing.

Mr. Ries has positioned his venture-capital-backed exchange-approved by the Securities and Exchange Commission the morning of the Uber IPO-as a way to let companies’ visions play a greater role, as longer-term investors would be more amenable to spending on experiments and new business lines.

One of the challenges for the better-funded consumer companies is that when they are considered a good bet, they often are swarmed by investors pushing up their valuations early on, before it is clear how long rapid growth can continue, and before paths to profit are fully ironed out.

It has pumped billions into WeWork and sectors like food delivery and it is the largest investor in Uber and other ride-hailing companies.

For Uber, Snap and others, the investors were “Betting the market will believe the narrative,” said Brent Goldfarb, a management professor at the University of Maryland who has researched market bubbles.

Since receiving their top-dollar private rounds, some of the better-funded companies’ visions of future expansion have been tempered.

“It’s very hard to look at these things in a very narrow period of time,” said Roger Lee, partner at Battery Ventures, which invests in startups in various stages of maturity and has backed online retailer Wayfair and Groupon among other companies.

It’s unclear how long the company plans to hold its Uber stake; it often holds stock of public companies for years.


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