Dizzying Ride May Be Ending for Startups

Also, the decaying state of physical infrastructure in the U.S. is only going to drive more people to spend time on the Internet, where network effects are only getting exponentially more powerful as new networks are getting built on top of existing networks. These days a social startup that's "only growing as fast as Facebook" might not even be able to successfully raise a seed round. There might be a cyclical downturn, but none of the underlying trends in society point to tech being a bad investment over the longterm.

To be fair, I think these markdowns have more to do with who is investing than the companies themselves.

VC's do portfolio valuations much less frequently than mutual funds, PE firms or hedge funds do and they give less negative scrutiny to the valuation than the aforementioned firms do, the reason for this....

... is VC firm's typically don't allow redemptions on monthly intervals which means they can keep an unrealistic valuation for longer where as Hedge funds, PE firms and mutual funds, who typically allow monthly redemption, need to properly value each holding at the end of each month.

I mean if you are a VC, do you care if you don't write down Snap-chat at the end of the month, you really have no incentive to do so?

You get paid on a quarterly basis on the size of your portfolio, why mark it down until you are absolutely certain that it needs to be marked down, this point is usually not until you actually go to sell, be it IPO or private equity deal.

However, if you are a hedge fund and someone wants to redeem their assets, you want to make sure you value Snap-chat for what you can realistically sell if for as that's essentially what you are doing when you allow someone to redeem their funds from your firm.

With people pulling money out of hedge funds, and PE firms on a monthly basis, this makes you have to pay attention to valuations on a much more granular time frame than historically VC firms would have.