The Week in Tech: It’s Not Easy Being a Unicorn
Each week, technology reporters and columnists from The New York Times review the week’s news, offering analysis and maybe a joke or two about the most important developments in the tech industry. Want this newsletter in your inbox? Sign up here.
Hello, It’s Erin Griffith, reporting, happily, from my home base in San Francisco and not the carnival of virtual assistants, shiny screens, crowded smart homes and greasy VR demos in Las Vegas. Our correspondents made the CES maze of gadgets look almost fun, which anyone who has been there before knows is an impressive feat.
Back in the land of magical, billion-dollar start-up unicorns, things have been quieter, thanks to the federal government shutdown. No Securities and Exchange Commission means no progress on initial public offering plans of the larger start-ups, including Uber and Lyft.
Any other time in the last five years, this would not have mattered. The unicorns have been putting off their public market debuts for as long as possible — what’s another month or two? But a volatile stock market and signs of a possible recession have fostered a creeping sense of panic.
As The Times reported in December, Uber and Lyft already accelerated their I.P.O. plans to try to get ahead of a potential market shift. This week, Dara Khosrowshahi, chief executive of Uber, tempered expectations, telling The Wall Street Journal that market turbulence was not likely to affect the company’s plans, but “if it doesn’t happen, it doesn’t happen.”
Uber shareholders would most likely be disappointed if the company does not go public in the coming year, he added.
The shutdown, volatility and recession fears are happening at a crucial moment. The start-up world’s success hinges, in part, on its ability to use hype and “trust me” confidence to persuade people to believe in a vision of the future. It’s easy to get caught up in the narrative of innovation, disruption and rising valuations (and ignore the lack of profits).
But not everyone has, and skeptics are getting louder. Chamath Palihapitiya, a prominent venture capital investor, recently called the entire start-up and venture capital system a “charade” and “an enormous multivariate kind of Ponzi scheme.”
He’s right in one sense: A Ponzi scheme relies on its creator’s ability to persuade ever-larger crowds to buy into his or her vision. Same goes for start-ups that haven’t proved they’re able to turn a profit. A flash of doubt, especially among public-market investors, could spiral into a broader questioning of the entire start-up ecosystem.
For the largest, most valuable start-ups in Silicon Valley, many of which plan to prove themselves and their unprofitable business models to the world by going public, there could not be a worse moment for that to happen. If Uber can’t go public, what does it mean for all the “Uber for X” companies that followed its lead?
Cracks are beginning to show. This week, two high-flying start-ups experienced a reality check in their fund-raising. WeWork sought to raise $16 billion in new funding from SoftBank, its main backer. The company wound up raising just $2 billion — still an enormous pile of cash, but a steep step down from its original plan.
And Bird, a two-year-old scooter company that was so sought-after by investors last summer that they doubled the company’s valuation in just a few weeks, is now raising funding at a flat valuation, according to Axios.
Some venture capital investors say they welcome a downturn, as I wrote this week. They’re hoarding cash and making “downturn lists” of companies to invest in once valuations become more reasonable. And some companies have seen the venture-fueled madness and decided it’s not for them.
Elsewhere this week:
■ Economists and investors are clashing over the health of the American economy. No one is debating the health of the Chinese economy, with concerns spreading to non-tech companies including Ford, FedEx, Starbucks and Tiffany, Matt Phillips writes.
■ Apple’s biggest issue is not the Chinese economy, it’s that people like the columnist Kevin Roose’s mother don’t feel the need to replace their phones every two years anymore.
■ That may explain the surprising news from CES that Apple struck deals with a number of hardware companies, including Vizio, Samsung, Sony and LG, to use its software. The deals — something the company has resisted in the past — show Apple’s ambition to make more money from content and services, as sales of its cash cow, the iPhone, slow down, Brian X. Chen writes.
■ When the government asked Palantir and Oracle to share the number of women and minorities it employs, the companies tried to hide the numbers, citing them as “trade secrets.” According to a report from Reveal News, the numbers are abysmal. (Palantir has no female executives and just one female manager.) The publication sued to obtain the letters the companies sent justifying their privacy around the issue. The Palantir letter cited fears that competitors would steal their lone female manager.
Erin Griffith writes about start-ups, venture capital and the rest of the tech industry for The New York Times. She is based in San Francisco. You can follow her on Twitter here: @eringriffith.
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