by Bob Stokes
Updated: December 06, 2016
[Editor's Note: The text version of the story is below.]
The bull market in stocks of the past seven years has provided business startups with an unprecedented amount of venture capital.
In April, venture capitalist Bill Gurley said (abovethecrowd.com):
Never in the history of venture capital have early stage startups had access to so much capital. Back in 1999, if a company raised $30mm before an IPO, that was considered a large historic raise. Today, private companies have raised 10x that amount and more. And consequently, the burn rates are 10x larger than they were back then. All of which creates a voraciously hungry Unicorn.
As you probably know, a "unicorn" is a private company with a valuation of at least $1 billion. Some well-known ones include Uber, Airbnb, Snapchat, SpaceX and Pinterest. Unicorns became so common that Silicon Valley came up with the word "decacorn" to identify new tech firms that have $10 billion capitalizations.
Yet, our May Elliott Wave Financial Forecast described this historic flood of venture capital as a mania and said:
Since January, the total number of unicorns is down from 229 to about 160. … For most if not all technology companies the game is already over.
Indeed, the just-published December Financial Forecast notes that many startup sectors are already in bear markets. The new issue shows this chart (entire wave labeling available to subscribers) and says:
The Bloomberg U.S. Startups Barometer tracks the occurrence and level of recent venture activity via fundraising and the sales or IPO exit prices of private firms. The chart shows a complete five-wave rise into the index's June 2015 high, signaling in Elliott wave terms that the "fading unicorn luster" is just the beginning of a larger decline.
Through Oct. 15, the Startups Barometer has dropped 21% since its peak on Nov. 15, 2015.
In fact, this year, dozens of startups were required to accept reduced valuations in order to receive more funding.
Here's another sign that the technology game is nearly over (Bloomberg, Oct. 20):
Silicon Valley remains a safe-looking diversification strategy for investors, especially wealthy Middle Easterners and Russians with little regard for rates of return.
As we've long noted, overseas investors usually jump on a trend just when it's about to end.
Our latest analysis also reveals that several other financial trends are on the cusp of historical turns.