Valuations are funny things; they can go up and down like YoYos Theranos, SevOne, Jet.com, Birchbox, RJMetrics

Tom Paine

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Valuations of privately held ventures are very fluid, much more so than for publicly traded firms.

Take Theranos, for example. The California-based startup, which claimed to have the methodology and technology to revolutionize blood testing with a simple, low cost solution, soared to a valuation of $9 billion, one of the mightiest of Unicorns.

But reports last Fall questioned the validity of its lab test results, implying that Theranos wasn't being straightforward, at the very least.

Early this week Theranos founder Elizabeth Holmes made a rare public speaking appearance in front of the American Association for Clinical Chemistry convention (a lively crowd) in Philadelphia, and the audience had an expectation that Holmes would address the controversy surrounding the blood test results. Whether those expectations were realistic, I can't say.

But Holmes instead decided to present the beleaguered start-up’s new 'miniLab' diagnostic tool,  a completely different product not facing the same regulatory issues.

Some in the audience felt used, taken in by a pretext to hear a pitch.

Then there's SevOne, Delaware's latest, greatest startup hope.

In 2013, Bain Capital, which doesn't usually make bad bets, poured in $150 million to buy out the founders and investors of the fast-growing network monitoring startup founded by Vess and Tanya Bakalov. Bain also installed its own guy as CEO.

Another round of $50 million followed in late 2015, at a valuation the Wall Street Journal described as bordering on $1 billion. At that time it became apparent, though never officially announced, that SevOne's headquarters were moving from Delaware to Boston. This created an extra management layer far from the largest concentration of its engineering talent in Newark.

The first layoffs at SevOne came in March, probably less than 10% of a workforce of more than 500.

The layoffs that began this week were described by ex-employees interviewed by the Wilmington News Journal as possibly running into the hundreds. A request by Philly Tech News to SevOne for clarification has not been responded to.

What caused SevOne's problems? Was the headquarters shift to Boston disruptive? Did it staff up too quickly? SevOne is still well-positioned on the most recent Gartner Magic Quadrant. Also see 451 Research's new report.

My guess is that SevOne's product is complex and not as simple as rolling out more boxes to a new account. Serving a small number of large accounts, such as Comcast or Amazon, is different from reaching a broader customer base. Or maybe it simply wasn't that unique from its competitors. In any event, its unlikely that SevOne could now raise funds at anywhere near a billion dollar valuation now.

Update 8/21: Still haven't seen or heard anything more specific about SevOne's reported layoffs.

Marc Lore / ( LinkedIn)

To the upside, the Wall Street Journal reported that Jet.com is in buyout talks with Walmart at a valuation that could near $3 billion. Jet has raised at least $700 million to date, with its most recent valuation being in the $1.3 billion range.

Penn-related MentorTech Ventures, which was also on board with Marc Lore's previous startup, Quidsi (sold to Amazon for $545 million) was an early investor in Jet, his latest.

Recode suggests a match could be made between Walmart, which is desperately playing catchup to Amazon in ecommerce, and Jet.com, which may face a tougher road if it needs to raise more capital on its own. Jet.com's ecommerce team is considered one of the best, so in a sense a buyout might be a kind of acquihire.




Birchbox, founded by a pair of Harvard MBAs, was seen as a model for the emerging subscription economy, offering a monthly delivery of a collection of health & beauty aid samples, with the idea that a percentage of subscribers would order full-sized items. Early backers included First Round Capital. In 2014, it raised $60 million in a round that valued it at around $500 million

Birchbox has also had two layoff rounds this year, totaling more than 25% of staff. Although its said to be doing around $200 million in revenue, it was still facing a cash crunch. (You go to Harvard to learn how to make a buck off of $200 million in sales).

So this week Birchbox announced it had received a $15 million infusion from its existing investors, including First Round, which is hopefully intended to carry it to positive cashflow.

One of Birchbox' co-founders, Hayley Barna, is now a venture partner with First Round.




Lastly, there's RJMetrics, which exited last week through a sale to ecommerce software firm Magento, previously an RJMetrics partner. I know nothing about its numbers, but considering the extent of its layoffs earlier this year it seems unlikely that it provided a return equal the the valuation implied by the $23 million in VC funding it received .

Not to take anything away from Bob Moore and Jake Stein, who built the business absolutely from scratch with nothing but their combined brainpower, before taking VC money when RJMetrics was firmly established.

No word on how its spinoff, data transfer tool provider Stitch, is financed.

Sunday Morning Tech Buzz 10/25: Why some Unicorns are in trouble; SevOne celebrates 10 yrs; IMPACT 2015 Capital Conference November 3rd & 4th

Tom Paine

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(Where I somehow try to answer questions I haven't been able to answer the rest of the week, at a time when I'm least capable of doing so. And sometimes don't finish on time. This week, my excuse is that I made a rare visit to church.)

Well...that's one way to respond when a VC passes... pic.twitter.com/C5WWYnk5KV

— Josh Kopelman (@joshk) October 22, 2015

Also on the First Round Capital front, Uber, which on paper is worth alot to FRC, is said to be talking about raising another $1 billion, possibly pushing its valuation near $70 billion. These reports about Uber, when appearing in the "responsible press", usually turn out to be accurate and often conservative.

Meanwhile, an NYU professor and well-known expert on valuations thinks Uber is only worth about $23.4 billion, approximately. And Fortune looks at the private
company valuation game and why there are so many unicorns now.

The problems with some unicorns is that they are built upon a pile of assumptions,
one stacked on top of another, that can collapse like a house of cards. Its too early to say, but there's a chance that DraftKings and FanDuel may have suffered irreperable damage from the alleged insider dealing scandal at DraftKings, Even if every one is cleared of wrongdoing, it still puts the spotlight on them and its unclear whether states and the federal government will continue to find their games legitimate. The US Attorney for Southern New York subpoenad DraftKings this week, reportedly asking for information about an employee’s activities and potential misuse of inside data.

I don't understand the science behind the Theranos situation as well, but that company's been valued at $9 billion, so there's a lot at stake.

Another unicorn, restaurant search engine Zomato, laid off 300 out off some 3,000 employees globally, the primary targets being people who collect content about restaurants. Technical.ly Philly reported that it ditched Philly entirely, shutting down its 15 person office, consisting of mostly content collectors.

TechCrunch reported that Zomato has raised over $223 million in funding, and in April the company disclosed its $1 billion valuation.

And that's how bubbles get started. Some people have a great deal of money to invest and their hurdle rates (expected returns) are low because interest rate are so historically low. Irrational assumptions, questionable due diligence, and failure to consider possible risk scenarios compound the problem. I'm not really crying for those investors who get burned on some of these deals.

But I won't call it a bubble now because I haven't seen enough blood in the street, as some people say. There have been rounds of layoffs at several area banks and FMC is cutting 800 + employees (some locally), as examples, but I haven't seen it hit much in Philly's tech sector.




SevOne held its first User Conference last week at UDel, though it was fairly small because its customer base is still a concentrated group of large customers and it was closed to the public. And it was fairly quiet, with not a great deal of information coming out of it, probably by design. But it certainly attracted considerable attention. My post on the user conference received amazing traffic on Twitter, though I suspect much of it were from bots set to respond to any mention of SevOne, paticularly after my post was retweeted by SevOne.

But its an exciting time for SevOne, which may or may not have attained unicorn status by now. In terms of dynamic, scalable monitoring of large network performance (and it handles some huge ones) SevOne appears to be ahead of the pack at the moment. And the market for large network management tools is exploding, with the emergence of mobile devices, Internet of Things applications, and the sheer number of devices now in use. SevOne will face big decisions in the next year or two: whether to go public, acquire or be acquired, and how broad its product line should be (right now its rather narrow). As well as tactical decisions about how to manage the products it has.

SevOne also used the occasion to celebrate its tenth anniversary of its founding, holding it at the University of Delaware where the Bakalovs started it. And part of the event was held in its future Delaware head offices at the Star complex on campus.

.@tanyabakalov celebrates 10 years of #SevOne at the new STAR campus office. pic.twitter.com/xZ6YXZ7NbU

— SevOne Inc (@SevOneInc) October 21, 2015

But one other firm that deserves much credit for SevOne's success was quiet; Osage Venture Partners, a fairly small VC at the time, had the vision to get in early. Osage is still in SevOne because it participated in its latest round; I don't know whether it got anything out at the time of Bain's investment snd partial recap.


Just a reminder, and I'll have more info next week, that the IMPACT 2015 Capital Conference, one of PACT's most important annual events, is right around the corner, to be held on November 3rd & 4th at the Ritz-Carleton Philadelphia.