Lots of people have predicted that the tech sector’s seemingly endless supply of investor money will soon dry up. Add Bill Gates to the list.
In an interview with The Financial Times, Gates sounded bearish for the near term on “unicorns.” That’s the term used to describe the 150-or-so privately held tech startups valued at $1 billion or more.
“I might go short in the two-year time frame but not in the longer time frame,” Gates said, ” Because all it takes is one or two of those to join the pantheon [of successful tech companies] and your short would make you go bankrupt.”
For sure, the capital markets don’t appear as friendly to tech as they once did. In 2014, 55 tech companies went public and generated $32 billion. Last year, the number of tech public offerings fell to 23 and they raised only $4 billion. If venture capital and other private equity follows the same trend, some of these once high-flying startups may become starved for cash.
While the Microsoft co-founder, now worth an estimated $80 billion, didn’t say the tech bubble is bursting, he did acknowledge “there’s some sorting out” occurring.
What hasn’t helped is that many of the so-called unicorns have failed to perform as expected. Uber, the biggest unicorn with a $60 billion valuation, has seen its overseas expansion hampered by regulatory and labor issues. Zenefits, the software company focused on streamlining health insurance companies , last week announced a round of layoffs. And things are so bad at Theranos, the blood-testing startup plagued by government scrutiny, that Walgreens’ managers have reportedly tasked lawyers with finding a contract loophole so they can boot Theranos wellness centers from their stores.
If investors didn’t know it before, Gates took the opportunity to remind them that all tech companies aren’t winners.
“It never should be a case of closing your eyes and saying ‘Oh, it’s a tech company, just throw money at it,'” Gates told the FT. “Now you actually have to open your eyes and look at the company and if that company is on the way to become another Google, wow, then you’ll look very, very smart. If they’re on the way to go where 90 percent of all [tech] companies go, then you won’t. The need to discriminate is going to be there.”
Perhaps Gates’ comments should be forwarded to those Morgan Stanley investors who recently agreed to plunk down a minimum of $250,000 into an Uber investment fund without seeing the company’s books.