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Silicon Valley ‘unicorns’ stumble on Wall Street

This article is more than 12 months old

NEW YORK The so-called "unicorns" that took Silicon Valley by storm are facing a chillier environment as they turn to Wall Street for fresh capital.

The start-ups earned the moniker for quickly reaching valuations of more than a billion dollars without hitting public markets, considered a rare feat until a few years ago.

But some of the most prominent unicorns have stumbled on Wall Street, with investors cautious about their profit potential as well as an uncertain economic outlook.

Uber, which was the biggest of the unicorns and had hoped for a valuation of US$100 billion (S$138 billion), is worth half that now, and its shares have skidded some 30 per cent since its initial public offering (IPO) in May.

Ride-share rival Lyft has fared even worse, with a 40 per cent drop since its IPO early this year.

WeWork parent We Company, valued at some US$47 billion based on private funding rounds, shelved plans for its IPO this month and replaced its top executive Adam Neumann after a series of missteps and governance questions spooked investors.

Mr Nathan Thooft, a portfolio manager at Manulife Asset Management, said some of the big unicorns may have waited too long to list on Wall Street.

"Some of these big names like Uber have had their fastest growth in the past," Mr Thooft said.

"They had massive growth in the pre-IPO years. They are coming to the market at a time where their growth is actually slowing."

The chilly reception for the biggest start-ups has created a tough environment for other privately funded start-ups.

Connected fitness equipmentmaker Peloton lost 11 per cent as it began trade on Wall Street in the past week.

SmileDirectClub, a teledentistry start-up offering orthodontics, has also seen big losses since its IPO earlier this month.

Amid this unwelcoming environment, Airbnb, one of the biggest unicorns still on the sidelines, recently said it would hold off on its IPO until next year.

The Hollywood agency Endeavor, another start-up with a multibillion-dollar valuation, postponed its planned IPO at the last minute.

SOME SUCCESSES

Despite some of the high-profile stumbles, the IPO market has been generally positive.

According to Renaissance Capital, newly listed firms this year are up 25.4 per cent compared with the broad market rise of some 20 per cent.

Success stories include the video conferencing start-up Zoom, up 110 per cent over the past five months, and the vegan proteinmaker Beyond Meat, which has gained 500 per cent since its April listing.

Mr Garrett Black, analyst at the financial data firm PitchBook, said the start-ups need to offer a clear view of their business plan when they come to Wall Street.

"Basically, companies will be forced to be more disciplined with their capital when it comes to spending, as well as scrutinise their balance sheets and growth paths much more closely," Mr Black said. That is a shift from raising money from venture investors who are willing to take greater risks, he added.

The thrashing of some of the unicorns could be seen as a healthy development, according to University of Florida finance professor Jay Ritter.

"Valuations have gotten frothy but a sanity check has occurred," Prof Ritter said. - AFP

BUSINESS & FINANCE