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Following up on our newsletter topic last week regarding Fidelity's startup write-downs.....the question is now that these mutual fund haircuts have come to light, are Silicon Valley's hottest startups going to be more reluctant to take investments from these large money managers? After all, they are now basically semi-public. Apparently, some of the startups were unaware that certain investors regularly adjust the valuation of their holdings and report them publicly. Also, should other VCs be following Fidelity's lead and marking down their portfolio if it contains these startups?
Other cracks in the high valuations are starting to show. Square Inc., set to start trading tomorrow, is seeking a valuation lower than its last funding round. Venture capitalists are wrestling with how to respond to writedowns by their co-investors, says Fred Wilson of Union Square Ventures. “VCs are now facing the choice of whether to markdown our portfolios in reaction to Fidelity’s markdowns, or explain to our investors and auditors why we did not do that,” he wrote in a Nov. 16 blog post. Wilson, whose firm backs Kickstarter and Foursquare, expects the line between public and private markets to continue blurring.
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