Are all signs pointing to another crash in Silicon Valley?
IT IS home to multi-million dollar mansions and companies worth billions of dollars.
Silicon valley, long hailed as the start-up capital of the world, is where tech giants Apple, Facebook and Google all call home.
But if reports are to be believed, the centre of the start-up world could soon be heading for a spectacular fall with warnings that investment looks set to dry up.
San Francisco Bay’s Silicon Valley is an area awash with cash with more than 100 start-ups, known as “unicorns”, worth more than $1 billion.
And while there are plenty of ideas continuing to pour in, experts fear the money will soon start to dwindle as confidence falls.
Start-up mentor Philippe Suchet said he sees companies valued at $10 million, yet they lack product.
“Things have been frothy, and you see a lot of dumb money,” he told The Guardian. “The music’s going to stop and not a lot of people will have a chair.
“There will be a lot of dead bodies. A lot of dead bodies. There’ll be a lot of blood.”
Tech giant Google is among those based in Silicon Valley.Source:AFP
A series of recent stock collapses and billionaires turned into millionaires overnight have all contributed to making investors nervous and less willing to part with their cash.
In other words, there are a lot of people with a lot of ideas and only so much money to make and so many investors to help make it a reality.
According to financial news service Reuters, the IPO (initial public offering) market is winding down and is a sign the party could well and truly be over in Silicon Valley.
Many tech IPOs experienced soaring valuations after being offered for public sale last year, which not only made spectacular amounts of cash for their founders but also for their investors.
However, it boosted concerns that the bubble is about to burst after five of the 12 US-based tech companies, or 42 per cent, that went public in 2015 pricing their shares at a valuation below or nearly the same as their private market value.
This is compared to 24 per cent of the 29 that went public the year before.
Start-ups are also under pressure to sell stock quickly to ensure investors get a return on their money.
This $100 million mansion, purchased by Russian billionaire investor Yuri Milner is an example of the wealth Silicon Valley boasts.Source:AP
According to Vanity Fair, Silicon Valley could be set to suffer another “bubble” and crash similar to what took place in 1999, which “led to more than $6 trillion in losses, and sent the NASDAQ on a downward spiral”.
Start-up bosses lost millions in the space of hours, while others saw their net worth fall to zero in the space of months.
And while some dismiss the talk of a bubble, investors remain worried with a booming construction market, among other factors, all helping to create a false sense of security for some investors.
According to Vanity Fair journalist Nick Bilton, unicorns don’t have a lot of exit strategies with CEOs facing a tough choice, go public without a lot of revenue, or sell “which is difficult given the paucity of companies that can afford to make such an offer”, he writes.
“So, for many, the choice becomes fairly simple. You continue to raise more and more money, or you die.”
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