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Fidelity Devalues Stake in Blue Bottle, Dataminr, Zenefits Following Snapchat
- rokhayakebe 11y ago1) You have a company you know is worth $50 million. 2) You are smart; you scream and yell and tell everyone it's worth $1.3 billion. 3) Now even the smartest analyst is going to say you are worth $750 million. 4) A year later, the market is down. You are really worth $40 million.Some executives at big co "swoop" you for $550 million in what they call a steal + you needed the money.
- jgrahamc 11y agoI removed all the companies that stayed completely flat or were marked down at some point. Those that remain: Cloudflare (Series D) $4.35M $4.90M $4.90M Honest Co. (common) $4.06M $6.87M $6.87M Honest Co. (Series C) $9.48M $16.03M $16.03M Meituan Corp. (Series D) $10.00M $12.29M $15.71M SpaceX (Series G) $7.54M $7.54M $8.66M Uber (Series D) $80.00M $204.42M $204.42M Uber (Series E) $3.42M $4.07M $4.07M
- x0x0 11y agothose columns are, btw, company name price price price paid 31 july 30 sept
- tomasien 11y agoOverall dollar for dollar it's even or in the black for Fidelity for what it's worth because of the massive Uber write ups. Seems like a non-event to me, people just want to believe these valuations are insane. Are you really feeling that much better that Snapchat is worth $10bn instead of $15bn if you hate Snapchat?
- ucaetano 11y agoThe event is not the mark-down, but the publicity of it. Most of the mark-downs of privately-held startups happen behind closed doors, and they are only visible when new rounds are announced (and only if they include the valuation). Having Fidelity investing in startups adds a whole new layer of public disclosure to the VC world, specially relevant in the light of the large number of stale unicorns.
- ryan-c 11y agoGSV also has a bunch of startup investments that it publicly discloses value information on if you look at their 10-Q and 10-K filings.
- sbisker 11y agoThe fact Fidelity is being this transparent is great news for engineers in the startup scene considering or holding jobs at these companies. No longer can managers keep selling a dream that was last pitched years ago at their last funding round; they'll have to compensate for underwater options with rising salaries or grants to keep talent around. Certain startups have a habit of delaying sharing bad news with their employees to the very brink of collapse; this behavior will now be in check somewhat.
- jgalt212 11y agoI heard that. Employees need more data to evaluate job offers (especially in this economy where the big guys are offering a lot of cash, and the small guys are offering a lot of cash too but also equity of sometimes dubious value). If you take equity, you are not only subject to dilutions, but also to other investors getting much more preferential terms to you. I'm not saying to don't take a job because of shares, RSUs, or options offered, but one needs to take a hard look at these things to figure out what their true worth is. And in most cases, you may only be able to compute a confidence interval and not a point estimate. Fidelity's disclosure makes this seemingly intractable problem a bit less intractable.
- toomuchtodo 11y ago
- applecore 11y agoWhat methodology does Fidelity Investments use to determine the valuation of their stake in these privately-held companies?
- cs702 11y agoImagine the lovely conversations these companies' VC backers will be forced to have with their fund investors (who will surely ask about Fidelity writing down the valuations) and with fund auditors (who will surely ask about lowering the carrying value of those investments to reflect recent market developments): "Why is your VC fund carrying company X at that much per share? Fidelity just wrote it down to this much. Please explain." An immediate consequence of these very public write-downs by Fidelity will be that every other late-stage pre-IPO investor holding stock in these companies will likely write them down too. Further consequences are more difficult to predict. One potential outcome is lower valuations across all investment stages. Another could be less excitement and slower deal cycles. It could get harder to raise capital.
- exelius 11y agoThis is the double-edged sword of allowing institutional investors to jump in to pre-IPO companies. They can provide staggering sums of money and allow you to put off your IPO for longer, but they bring with them many of the pain points that an IPO does. Retail investors and HFTs aren't the ones causing boardroom drama over margin and sales numbers, and the institutional guys won't put up with any accounting shenanigans (a la Groupon). I really wonder if, after all the dust settles, many of these "unicorns" would have been better off IPOing around a $1-5 billion valuation. For sure their early investors will be if the late-round institutional guys are writing down their holdings by this much.
- peloton 11y agoYea, I think the industry seems to have been caught off guard by how aggressive the mutual funds have been with their mark-to-market valuations. This public data will likely have to be factored into the valuation methodologies of the private investors in these deals. Absent of this, Unicorn valuations were probably going to take a much longer time to deflate.
- austenallred 11y agoIt probably goes something like this: "We thought it was worth more, and it may well be in the future. But if it's not, that's OK, that's why we have a portfolio of 150 companies; some will lose money. We plan on that happening to x% of our companies, and on average we're still lanning on seeing a #x return on the capital you invested." In other words, this is absolutely an expected part of VC, even at the late stages.
- vasilipupkin 11y agosurprised to see Zenefits on this list. I thought it was a highflyer.
- tomasien 11y agoAccording to accounts there were bidders from 2B to 3.5B and Fidelity came in at 4.5B at the last second to win the bid. The fact that they now wrote it down to the range others were bidding at is essentially meaningless.
- JonFish85 11y agoUnless Fidelity honestly felt that the valuation was accurately represented as $4.5B, and now doesn't feel that way?
- vasilipupkin 11y agoit's not meaningless. It's a data point that adds to support the theory that late stage private valuations are too high and companies should be going public sooner.
- ogezi 11y agoWell, this is certainly undesirable.
- cryptoz 11y agoIs it undesirable, though? Maybe I am misunderstanding what Fidelity is doing, but it seems to be a careful reconsideration of the very high valuations placed on these startups. This kind of re-adjustment is exactly what would be necessary to keep the market stable and avoid a runaway bubble, right?
- potatolicious 11y agoThat's my read too - if we want to prevent a pop we need to be letting air out of the balloon regularly. Some skepticism from investors is good, more due diligence re: valuation is good. This is a pretty mild correction overall, which is good for everyone. I'd be much more worried if Fidelity were snapping up startup shares at ever-higher valuations without ever reckoning actual performance. As people who work in the industry, this might mean a mild slowdown in hiring as funding becomes a bit more difficult, but it also may prevent the catastrophic alternative which is the bottom falling out from under us and massive tech-sector unemployment. Personally I think all of these recent announcements are good for startup employees. For the last few years some of us have been expressing a lot of skepticism about the real value of startup options and how much they can realistically exit for. Between valuation write-downs like this, and the face-plant IPOs of the last couple of years, I think people are starting to see the true value of startup options and I hope it results in people being much more discerning about how they're being compensated.
- mrmcd 11y agoOne thing I read that isn't often mentioned is how liquidation preference for late rounds can drive a lot of these insane valuations. For example, let's say you raise $250MM in a series E at a 10B post money. As a company/founder, this makes you look awesome on paper and super valuable as a company. Meanwhile, the series E investors usually have the top priority for liquidation, meaning the risk is actually pretty small, since the sale/IPO value would have to go below 250MM before you lose money. The real people getting screwed by these paper unicorns though are the late stage employees being sold options as compensation.
- aptimpropriety 11y agoBut Fidelity isn't writing down the value of the company, it's writing down the value of its shares. Do you have any guesses as to what this means, given they are probably the most senior equityholders on this investment? My suspicion (from experience in the mutual fund industry) is that this is tax accounting related. Overly simplistic explanation: Mutual funds typically distribute short term capital gains at year-end, which is taxed as ordinary income (~40%), not capital gains (~15%). Managers of funds that hold private securities actually have the choice to 'mark down' the prices of their securities in any given month. Think of it like valuing a house - if you want to value your total net worth, you can mark your price as what you want, to an extent (see Trump). Managers often use this flexibility to 'bury' losses in down times, or for tax advantages. Finally, can't agree enough about who loses in these cases. Employees who vastly over-value options are the folks who lose in this case. Investments made by institutional folks like Fidelity are too small to even register as a blip to their overall funds, and those funds are diversified and managed to handle downturns in sectors like this.
- the_watcher 11y agoThe tax implications are interesting, haven't heard it brought up before.
- maxerickson 11y agoThese funds have 10s of billions of dollars of investments, a few tens of millions here or there does not have significant tax implications. Here's one of the Fidelity funds invested in Snapchat: https://fundresearch.fidelity.com/mutual-funds/composition/316200104 https://fundresearch.fidelity.com/mutual-funds/composition/3... It's got $40 billion under management. There's a document findable from there that lists their Snapchat investment as $10 million (Prospectus and Reports->Monthly Holdings report). The number 1 holding of that fund is $2,192,901,654 of Apple. So they get roughly $10 million each time Apple pays a quarterly dividend.
- a3n 11y agoI don't know what I'm talking about. I wonder if these devaluations are to give Fidelity a tax loss.
- maxerickson 11y agoTaxes (at least mostly) apply to realized gains or losses. This is Fidelity telling their customers what their holdings are worth.
- mattmaroon 11y agoYeah everyone here seems convinced they're trying to game some system. I think Occam's razor is right here. They really just think those companies are worth less than they were. But, I still wouldn't worry about that too much directly. As the article mentions, it's more art than science. If I were Zenefits I don't think I'd be sweating it.
- akg_67 11y agoBasically, Fidelity lost money investing in private companies. Only reason the Fidelity private investment is in the black because of the higher valuation of Uber Series E round that "artificially" inflated the value of the Fidelity shares from previous Uber Series D round.
- chad_strategic 11y agoThe reality here is is Fidelity is getting ahead of the curve. Chances are pretty good interest rates are going to rise in Dec. Some money will follow to these risk free interest instruments (savings, Bonds) Why take such a risk on on a start up with say a 1 in 50 chance of payout, when you can get 1% return on investment at no risk? Unicorns can only exist in ZIRP. (Zero interest Rate Policy) In laymen's terms it's called a bubble.
- chad_strategic 11y agoLOL, you always get down voted when you tell the truth.
- deleted 11y ago[deleted]
- malchow 11y agoSo Fido wasn't great at investing in emergent technology. It paid too much and chased what it saw as 'performance,' applying a Wall Street paradigm to something entirely different. I don't think this result is a surprise, and I'd say it's very, very good for the health of the technology economy.
- malchow 11y agoAny downvoters want to explain?
- code4tee 11y agoLots of bombed IPOs recently followed this track. If they IPOed at 1 (what they were likely worth) and went to 1.2 they'd be seen as a solid company with great growth potential. Instead they IPO at 5, fell to 2 and are really worth 1. Now they're seen as a hopeless train wreck that can't be saved and sign of a "bubble." A silly high paper valuation during funding rounds makes for fun press releases, but it can cause a ton of headaches later (if the company isn't actually worth those amounts... and most aren't).
- JonFish85 11y agoHopefully this doesn't border on the "conspiracy theory" side too closely, but if a company is able to IPO at 5x what they're "actually" worth, the company still gets that cash, so what happens to the stock price after that doesn't matter from the perspective of the company accountants. A couple of examples: Groupon: IPOed at $20/share, raising ~$700m. They are currently trading in the $2.70 range. From a company perspective, they killed it by IPO-ing -- they took $700m worth of cash, most of which I believe they still have (as of a few months ago they still had ~$1bn in cash equivalents). Zynga: IPOed at $10/share, raising roughly $1bn. They are currently trading at $2.48. Same basic story as above. Their current market cap is just about double what they raised in cash at their IPO. So from two perspectives, these companies did exceedingly well: their investors and founders likely cashed out most of their chips at IPO, so they made a killing, and the company received a tremendous amount of cash for their coffers. Sure, Groupon and Zynga booted their CEOs, but they don't care much, and I'm sure whoever they got to replace them is handsomely compensated (regardless of how well they do). So who gets screwed? Employees, who don't get to sell their shares until the company has tanked, and whichever investors are stuck holding the bag after IPO. But after the IPO, there's not much of an incentive for these early people to care about that; if they get canned, who cares, they'll cash out their $100m worth of compensation and go work at some other company down the street.
- code4tee 11y agoWell yes, "bombed IPO" is a relative term. If you float a pile of trash onto the stock market and rake in a lot of $$$ then sure cash out and go live on a nice tropical island somewhere while leaving a smoking crater behind full of employees holding worthless options. From the early investors standpoint that's a win. However, that can only happen so many times before the "suckers" that were buying these things at IPO catch on and lose their appetite. That sort of thing is in part what's happening and in part why these write downs are occurring. The paper valuation during funding rounds is only real if the "real market" (i.e. everyone, not just a few VCs writing founders a cheque) is willing to buy shares at that value. If the market continues to get more skeptical, and there's every indication that this will continue to be the case, then down rounds are an almost certainty moving forward for many firms. That's also a big problem for employee options, which typically only have value if the valuation keeps skyrocketing.
- gtpasqual 11y agoAnyone else realized Fidelity only invested $3.42M on Uber's Series E ?? They raised 1B in that round.
- JonFish85 11y agoMy naive guess on this is that they had provisions in place to avoid being diluted, so they took advantage of that.
- gtpasqual 11y agoIm not on the side of VCs, but many are victims, not guilty, of this. Usually, institutional investors(e.g. Fidelity) give money to VC funds that spend most of their time finding good and reasonable investments. However, Fidelity and other institutional investors have been investing in late-stage deals, "cutting off" many VC funds and increasing valuation of companies. http://www.bain.com/publications/articles/shadow-capital-steps-into-spotlight-forbes.aspx http://www.bain.com/publications/articles/shadow-capital-ste...
- pbreit 11y agoIs Fidelity unimportant enough for this to diminish deal flow?
- npalli 11y agoSo, here is the list of unicorns that Fidelity has invested with individual gains/losses shown. Turns out for the entire unicorn fund, it is about 36% above cost. http://www.valuewalk.com/wp-content/uploads/2015/11/Fidelity-unicorns.png http://www.valuewalk.com/wp-content/uploads/2015/11/Fidelity...
- gtpasqual 11y agoMongoDB (Series F, 8%) $32 M $16.74 M $14.77 M I'm not surprised
- selimthegrim 11y agosource? PitchBook?
- gtpasqual 11y agono, they have updated this link with an updated version
- downandout 11y agoThis undoubtedly has to do with the $2 billion haircut that Square's late-stage investors are taking on its IPO. But it's really Fidelity's fault. If you offer money at ridiculous valuations, guess what? People are going to take you up on it, and you're going to lose money.
- Eridrus 11y agoSquare's late stage investors had a ratchet, so they're not actually taking any haircut at all; they're getting a 20% return in a year.
- mesozoic 11y agoKudos to Fidelity for doing the right thing for their investors.
- gtpasqual 11y agoThis the updated and full list: http://fortune.com/2015/11/12/fidelity-marks-down-tech-unicorns/ http://fortune.com/2015/11/12/fidelity-marks-down-tech-unico...