Silicon Valley’s “Death by Overfunding”: Next Unicorn Collapses, by Wolf Richter

Silicon Valley’s latest infatuation with “concept” companies that may make money in some distant future is fading. From Wolf Richter at wolf street.com:

When the ocean of hype turns toxic.

San Francisco-based Jawbone was a unicorn whose valuation peaked at $3.2 billion in 2014. Past tense because the maker of fitness trackers and other gadgets began quietly liquidating last month. And it’s being sued by vendors that claim they’re owed money, according to Reuters. Yet, Jawbone had raised nearly $900 million in equity and debt capital. And it blew this money.

Jawbone’s liquidation was first reported by The Information on July 6 and confirmed on Monday by Reuters. It’s the second largest failure of a venture-backed startup in terms of money raised, behind the bankruptcy in 2011 of solar-panel maker Solyndra.

Top venture capital firms — including Sequoia, Andreessen Horowitz, Khosla Ventures, and Kleiner Perkins — had invested in Jawbone. In September 2014, it raised $147 million at a valuation of $3.2 billion. In February 2015, it raised $400 million in debt, of which $300 million from BlackRock. By November 2015, with prospects curdling, it laid off 15% of its workforce.

In January 2016, when VC firms refused to throw more money at it, Jawbone’s president Sameer Samat, who’d arrived from Google seven months earlier, went back to Google, and in the same breath, the Kuwait Investment Authority led a $165-million Hail Mary investment in the company.

It was a huge “down-round” that slashed Jawbone’s valuation by nearly 55% to about $1.5 billion. Getting something at half-off must have been too tempting. Similar down rounds have since bedeviled the startup scene.

Jawbone started making stuff in 1999 – headsets, speakers, and the like. In 2011, it entered the hot field of fitness trackers. But it never got to 5% market share, slammed by wearables made by Apple, Samsung, Xiaomi, Garmin, TomTom, Moov, etc., and by crashed IPO darling Fitbit. Fitbit went public in June 2015 at an IPO price of $20. Within weeks, shares hit $51.90. They closed on Monday at $5.23.

So what killed Jawbone? Why didn’t some company with deep pockets just buy it, as it happened countless times in recent years? It doesn’t matter for venture investors that these startups, once under the corporate mantel, were often just shut down. A profitable exit is what matters. Apple, Cisco, IBM, Microsoft… they’re all buyout machines. Why not Jawbone a few years ago, when it was still hot? What kept them from buying it?

Its valuation, according to Reuters. At $3.2 billion at the peak, it had been driven to a level where no one wanted to touch it.

To continue reading: Silicon Valley’s “Death by Overfunding”: Next Unicorn Collapses

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