Remember way back in the glory days when the combination of “everything social” and “IPO” meant near instant stardom and riches? For those who might be having a little trouble remembering; it was way back in days past just a little under 24 months ago. Yes, that’s months, not years.
Yet, as far as the many still clinging to IPO cash-outs, or stock option redemption in lieu of salary? It’s bordering on an eternity. And, believe it or not, that waiting game may have just been extended. The reason?
Look no further than the once hailed songbird of both “social,” and in a larger context, much of what being a tech firm in “Silicon Valley” encapsulated: Twitter™
Twitter has truly morphed into the literal “canary in the coalmine” of what I believe portends in the not so distant future for much of “The Valley” and “social media” in general. i.e., Laying on their backs, in the bottom of their cages, with nothing more than rumors and innuendo of either an offer to buy, or worse, an offer to just look. The latter having the worst of consequences once the “Thanks, but no thanks!” formality becomes public.
It would seem, in my opinion, Twitter™ received the equivalent of both in the very same week. Can anyone say (or should I say tweet?) Ouch!
As I stated earlier: “way back” was just under 24 months ago. And what truly took place as to hinder, or tarnish the implied “genius” status of founders, or the brilliance of the “it’s different this time” defense as it pertained to actual fundamental business metrics was The Fed’s ending of QE (quantitative easing.)
And with that has come the realization (albeit very slowly) that “unicorn and rainbow” thinking belongs where it should – in fairy-tales and folklore.
Want proof? Just look back to the ancient texts circa 1990-2000 in the “dot-com mania and crash section” via your search engine of choice. And for those of you old enough to had been “invested” back then? Just remember to have a tissue at the ready is all I’ll say.
For those not familiar, or those painfully trying to forget, the condensed version is this…
First there were cracks in the meme (think “it’s different this time”) then, one by one, once heralded IPO high flyers (think Twitter, LinkedIn™, etc.) began losing value from their peaks. At first it was slowly, then suddenly, and all at once, where they never regained their former lofty valuations. Till finally, the revenue models (think “eyeballs for ads”) along with their assumptions (think “billions upon billions of potential customers!”) were completely destroyed, taking even the largest of players down only a few years later of what was seen at that time as “unimaginable” with the demise of the then king of “new media” AOL™, yesterday’s equivalent of Facebook™ today.
But not too worry, after all, it’s different this time, yes?
Although I’m not as old as Methuselah (if you don’t ask the kids) I penned an article way back when in Sept. of 2014 titled “The Shot Heard Round The Valley World.” right before the official ending of QE. And in it I made the following argument. To wit:
“But, one shouldn’t read into this as “confirmation” the risk appetite story is not only alive but growing. For that is all about to change.
Once the Fed shuts down the section of QE that has been pumping Billions upon Billions of dollars every month – it’s over for a great many of today’s Wall Street darlings.
Think of it this way: Who is going to fund your next round when they no longer have access to the Fed.’s piggy bank? Let alone pump more money into older start-ups that just haven’t produced any real money (as in net profit,) but have produced nothing more than great new employee digs or benefits?
Tack along side this the culture shock in what will seem near instantaneous with the shunning that will take place of any business resembling the, 3 employee, menial customer base, Zero if not negative profit margin businesses formed with the implicit intent as to be bought up or “acquired” for Billion dollar pay days.
These will be the first to go. That formulation is going way of the now infamous Pets dot-com sock puppet. This will be the first true shock to Silicon Valley culture that hasn’t been seen in many years. And it will be far from the only one.”
Along with this assertion:
“And that won’t be the only monumental shift coming. Maybe, one at an even faster pace: The meaning of IPO.
IPO is not going to have the same term of endearment it now has. I believe it will turn into the last and most dreaded three-letter acronym no one ever imagined in Silicon Valley.
The IPO screams of joy will turn into wails of terror when those VC “angels” meet at many “treps” desk and state – they’re IPO-ing.
No, not getting one set up for the big pay-day. No IPO will mean: “I’m pulling out.” i.e., “Have a nice day. Where’s the rest of my money?”
The once renowned purchases of “Billion dollar babies” will prove out not to be worth two cents in this environment.
Valuations will get crushed and people will be shocked at just how fast a company touted across the financial channels and other media as “fantastic buys” are flogged and fleeced when Wall Street comes back for their “investment.”
If the story or the numbers aren’t there – neither will these once darlings of Wall Street. Regardless of size or stature.”
You saw the ensuing cracks begin during the initial months of 2015 as the IPO market began drying up faster than a puddle in the Sahara as once Wall Street IPO darling stock prices went from “high flyer” to “dropped like a lead balloon” status – and never, repeat, never ascended within earshot of those once “totally worth it!” valuations.
Twitter is just the latest, LinkedIn showed just how much “hype” there was to all these valuation metrics. For without a Microsoft™ buy-out? It appeared when it came to getting more LinkedIn shares? There were more people looking to Link-out.
But not too worry! 2016 was said to be “The year for a rebirth of the IPO market.” That was said during the closing months of 2015. It’s now mid October 2016. How’s that all working out? (insert crickets here)
However, many will state this is all a bunch of “hyperbole” or “uninformed assertions” or better yet, as is portrayed among the main stream financial media crowd as “the doom and gloom-ers looking only to be proved wrong again, i.e., “For just look at these markets!” I leave you with 2 words that were near unconscionable over the last few years.
Two very small words that have monumental implications and should bring panic to anyone in tech, “Silicon Valley,” or still holding dreams of cashing out large on the basis of an IPO built on the “Eyeballs for ads” model. And it’s right there in Palo Alto, California for all to see. That is – if one dares look.
Those two words?
And no, that’s not in reference to a Silicon Valley darling such as a start-up. No, those two words belong to that other seemingly invincible meme which was seen as far more stable than the IPO’s that afforded them.
© 2016 Mark St.Cyr