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Scooters take over SXSW in Austin, TX
As the last decade ended, it became easier for a young engineer to hop on a Bird scooter and ride it to the nearby WeWork office, home to the hottest new crypto startups.
Then came Covid. Electric scooters and co-working spaces were no longer important, but there was a sudden need for tools to enable remote collaboration. Money started flowing into entertainment and education apps, which consumers could use during the lockdown. And while trading crypto.
In both periods money was cheap and plentiful. The Federal Reserve’s near-zero interest rate policy had been in effect since the 2008 financial crisis, and COVID stimulus efforts added fuel to the fire, encouraging investors to take risks, betting on the next big innovation. And crypto.
This year, it all opened up. The cheap money bubble burst, with the Fed raising its benchmark rate to the highest level in 22 years and persistent inflation causing consumers to step back and businesses to focus on efficiency. Venture investors continued to back away from the record levels of financing reached in 2021, forcing cash-burning startups to pivot or shut down. For many companies there was no practical solution.
WeWork and Bird filed for bankruptcy. High-value Covid plays like videoconferencing startup Hopin and social audio company Clubhouse went into oblivion. And crypto entrepreneur Sam Bankman-Fried, founder of failed crypto exchange FTX, was convicted on fraud charges that could have put him behind bars for life.
Last week, Trevor Milton, founder of automaker Nikola, was sentenced to four years in prison for fraud. His company had raised a bundle of cash on the promise of bringing hydrogen-powered vehicles to the mass market and had surpassed a valuation of $30 billion. December also saw the completion of Hyperloop One, which spent millions of dollars to build a tubular transport that would shoot passengers and cargo at airline speeds in a low-pressure environment.
There is certainly more pain to come in 2024, as cash for unsustainable businesses becomes increasingly scarce. But venture capitalists like Jeff Richards of GGV Capital see an end to this, believing that the days of zero interest rate policy (ZIRP) are well and good and good companies are performing.
“Prediction: 2024 is the year we finally end the category of ‘21 ZIRP ‘unicorns’ and start talking about a new generation of great companies,” Richards, formerly of Twitter, wrote on Dec. 25. Wrote in a post. “Never overrated”, well run, continued strong growth and great cultures. The IPO class of ’25 is coming your way.” He concluded with two emojis — one of a smiling face and the other of crossed fingers.

Investors are clearly excited about tech. After falling 33% in 2022, the Nasdaq Composite has jumped 44% this year as of Wednesday’s close, putting the tech-heavy index on pace to close out its strongest year since 2003, which overtook the dot-com The rebound from the bust is marked.
chip manufacturer NVIDIA The value has more than tripled this year as cloud companies and artificial intelligence startups have bought up the company’s processors needed to train and run advanced AI models. facebook parent meta Brutal bounced back from 2022, jumping nearly 200% due to massive cost cuts and its own investments in AI.
The destruction of 2023 occurred in parts of the tech economy where profit was never part of the equation. In the end, the accounting was predictable.
According to data from the National Venture Capital Association, between 2004 and 2008, venture investment in the US averaged about $30 billion annually. When the Fed pulled rates near zero, big money managers lost the opportunity to make returns in fixed income, and technology drove massive growth in the global economy and led to a sustained bull market in equities.
Yield-hungry investors invested in the riskiest areas of technology. From 2015 to 2019, VCs invested an average of $111.2 billion annually in the US, setting records almost every year. The frenzy reached a peak in 2021, when VCs invested more than $345 billion in tech startups – more than the total amount they invested between 2004 and 2011.
There is a lot of money, not enough profit
WeWork’s slide toward bankruptcy took a long time. The coworking space provider raised billions of dollars from SoftBank at a peak valuation of $47 billion, but suffered a setback when it tried to go public for the first time in 2019. The company lost more than $900 million in the first half, causing investors to retreat. The year and related-party transactions involving CEO Adam Neumann were suspected.
WeWork was eventually launched — without Neumann, who stepped down in September 2019 — through a special purpose acquisition company in 2021. Yet the combination of rising interest rates and sluggish return-to-office trends hurt WeWork’s financials and stock price.
WeWork’s Adam Neumann and Victor Fung Kwok-King, right, chairman of Fung Group, attend a signing ceremony at WeWork’s Weihai Road location in Shanghai, China on April 12, 2018.
Jackal Paan Visual China Group | getty images
In August, WeWork said in a securities filing that there were “continued concerns” about its ability to remain viable, and in November the company filed for bankruptcy. CEO David Tolley plans to exit many of the expensive leases signed in WeWork’s heyday.
Bird’s bankruptcy followed a similar path, although the scooter company had a much lower private market valuation of $2.5 billion. established by former uber According to executive Travis VanderZanden, Bird went public via SPAC in November 2021, and quickly fell below its initial price.
Far from its meteoric growth days in 2018, when it announced it had reached 10 million rides in a year, Bird’s model collapsed when investors poured cash into subsidizing affordable trips for consumers. has been closed.
In September, the company was delisted from the New York Stock Exchange and began trading over the counter. Bird filed for Chapter 11 bankruptcy protection earlier this month and said it would use the bankruptcy proceedings to facilitate the sale of its assets, which it expects to complete within the next 90 to 120 days.
While the onset of the Covid pandemic in 2020 was a blow to businesses like WeWork and Bird, a whole new class of companies flourished – at least for a short time. Along with rising share prices zoom, Netflix And pelotonStartup investors wanted in on the action.
Hopin, a virtual event planning platform founded in 2019, saw its valuation rise from $1.5 billion in December 2020 to $7.75 billion by August 2021. Andreessen Horowitz, meanwhile, cited Clubhouse as a preferred app for hosting virtual sessions featuring celebrities and influencers. The idea was when no one was able to get together in person. The firm led an investment in Clubhouse in early 2021 at a $4 billion valuation.
But the club house never became a business. User growth plateaued rapidly. In April 2023, Clubhouse said it was laying off half of its employees to “reset” the company.
“As the world opens up post-COVID, many people are finding it harder to find their friends on Clubhouse and integrate longer conversations into their daily lives,” co-founders Paul Davison and Rohan Seth wrote in a blog post. Has gone.”
Hopin was equally dependent on people staying connected to their devices at home. Hopin founder Johnny Bouffhart told CNBC in mid-2021 that the company would go public in two to four years. Instead, its events and engagement businesses were swallowed up. ringcentral Up to $50 million in August.
For some of the latest high-profile failures, the problems arose from the tech industry’s blind faith in its innovative founder.
FTX collapsed almost overnight in late 2022 as customers of the crypto exchange demanded withdrawals, which were unavailable due to the way Bankman-Fried used their money. Bankman-Fried’s white knight robes There was no large-scale investigation, as big-name investors like Sequoia Capital, Insight Partners and Tiger Global had put in money without receiving any kind of board presence in return.
Nikola’s Milton dazzled investors and the press, with an ambitious attempt to change the way cars drive in a way that other automakers had tried and failed in the past. In June 2020, three years after its founding, the company went public via SPAC.
Three months after its public market debut, Nikola announced a strategic partnership General Motors This valued the company at more than $18 billion, well below its peak in June.
Within days of the GM deal, short seller firm Hindenburg Research issued a scathing report declaring that Milton was spewing “a sea of lies.”
Hindenburg wrote, “We have never seen this level of fraud in a public company, especially one of this size.”
Milton resigned 10 days after the report, by which time concurrent Justice Department and Securities and Exchange Commission investigations were underway. Nikola reached a settlement with the SEC in December 2021. A week before Christmas this year, Milton was sentenced to prison for fraud.
Virgin Hyperloop One created the world’s first working, full-size hyperloop test in Nevada. It ran less than a third of a mile last year, and accelerated the 28-foot pod to 192 mph in a few seconds.
Source: Virgin Hyperloop
‘Moving on from lessons learned’
Hyperloop One is another far-fetched idea that never came to fruition.
The company, originally called Virgin Hyperloop, raised more than $450 million from its founding in 2014 until it shut down this month. Investors included Sir Richard Branson’s Virgin Group, Russia’s sovereign wealth fund and Khosla Ventures.
But Hyperloop One was unable to secure contracts that would have taken it beyond a test site in Las Vegas, ending years of struggle that included allegations of executive misconduct. Bloomberg reported that the company is selling assets and laying off remaining staff members.
Even for areas of emerging technology that are still thriving, capital markets are challenging outside of AI. Hardly any tech companies have gone public over the past two years after record years in 2020 and 2021.
Some tech IPOs this year generated some excitement. grocery delivery company instacart It went public in September at $42 per share after dramatically slashing its valuation. The stock has since lost more than 40% of its value, closing at $23.93 on Wednesday.
Masayoshi Son’s SoftBank, which was a major investor in WeWork and several other companies that failed over the past few years, took chip designer Arm Holdings public in September at a valuation of $60 billion. The offering provided some much-needed liquidity for SoftBank, which acquired Arm in 2016 for $32 billion.
Arm has outperformed Instacart, with its stock rising 46% to close at $74.25 on Wednesday since its initial public offering.
Many bankers and tech investors are seeing the second half of 2024 as the earliest opportunity for the IPO window to reopen in a significant way. By that time, companies will have more than two years to adapt to the changed environment for tech businesses, which will focus on profits above growth, and will also get a boost from Fed rate cuts expected in the new year. Could.
For some founders, the market never stopped. After his exit from WeWork, where he was backed by billions of dollars in SoftBank cash, which Son later called “silly,” Adam Neumann is back at it. He raised $350 million from Andreessen Horowitz last year to start a company called Flow, which says it wants to create “better living environments” by acquiring multifamily properties across the US.
Neumann’s WeWork experience is proving to be no liability. Rather, it led to Andreessen’s investment.
“We understand how difficult it is to build something like this,” Andreessen wrote in a blog post about the deal. “And we love to see time and time again founders building on past successes while building on lessons learned.”
Watch: End of WeWork, return of Neumann?
