It Gets Ugly in the Startup Bust

[marmar]

It Gets Ugly in the Startup Bust
by Wolf Richter • March 1, 2016


[font color="blue"]Debris from the collapse hits investors left and right.[/font]

Some startups succeed beyond anyone’s wildest dreams. This is the lure used to get investors from around the world to pour money into VC funds and mutual funds that invest in these miracles at ever higher “valuations” before they become miracles, before they have profits, or even revenues. The idea is to get in on the ground floor of a miracle. No price is too high. But now the miracles are deflating, reality is resurfacing, and a brutal drawn-out process has set in.

Yahoo investors are now coming to grips with this, because it’s their money that went down the drain when it bought Tumblr for $1.1 billion in 2013. At the time it recognized $750 million of that investment as “goodwill,” an intangible asset on which Yahoo blew tangible money. In January, it disclosed that it wrote down that investment by $230 million. And on Monday, it disclosed in its annual 10-K filing that it might write off “some portion or all” of the remaining goodwill.

But Tumblr is still out there, people are still using it, and revenues are creeping up. It’s just that after all these boom years when everything soared, the rout back to reality has set in, and its valuation is now being viewed with a more realistic eye, even at Yahoo.

Numerous startups have recently raised desperately needed new money at much lower valuations, including fitness-tracker maker Jawbone, whose valuation plunged 55% in that “down round,” and Foursquare, whose valuation was cut by 62%. ...........(more)

http://wolfstreet.com/2016/03/01/gets-ugly-startup-bust-investors-hit-mutual-fund-write-downs/