Silicon Valley Adjusts To New Reality As $100 Billion Evaporates

Poof! $100 billion has disappeared from Silicon Valley as the values of former tech darlings such as WeWork, Uber, and other unicorns plummet. This has made venture-capital investors more cautious about supporting startups while some new tech companies have cut back on spending and staffing.

Car-subscription company Fair and software company UiPath have downsized while Scooter-renting company Lime has done some shifting in its operations to lure in investors.

“We’ve been in the middle of a rollicking party that’s gone on for five years and someone has snapped on the light switch,’’ Chris Douvos, whose firm, Ahoy Capital, invests in venture-capital firms and startups, told The Wall Street Journal. “We are all adjusting our eyes and no one has any idea how the rest of the night is going to go. That’s how Silicon Valley feels right now.”

Entrepreneurs, venture capitalists, and startup advisers say it’s taking longer to seal financing deals are taking longer. And the deals are getting smaller. According to Adam J. Epstein, who advises startup CEOs and their boards, startups looking to raise $80 million to $100 million are now being informed by investors they should expect closer to $20 million to $30 million.

Much of the changes in Silicon investing is fallout from the WeWork IPO failure. The work-sharing space filed its public-offering paperwork in August and this led to scrutiny from the industry and the media about the company’s finances and leadership. “In one month, the coworking company cut its valuation down to as low as $10 billion from $47 billion, removed Adam Neumann as CEO, and delayed its initial public offering indefinitely,” Business Insider reported. 

By October, Softbank, WeWork’s biggest investor, had taken over the company and gave Neumann a $1.7 billion golden parachute to resign from his position as chairman of the board at WeWork. The company also laid off 2,400 employees.

“Every few years something happens to smack people on the head,” said Epstein. “The impact of WeWork on the funding marketplace has been material. I have seen that in real time.”