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The tech unicorn hangover is giving Wall Street a headache

John Detrixhe

Venture capitalists aren’t the only ones feeling the tech unicorn hangover. On Wall Street, Goldman Sachs also disclosed a headache today: the investment bank reported a 40% drop in revenue from the unit containing its Uber stake.

The New York firm’s revenue from investing in equities fell to $662 million during the third quarter, the worst performance in more than three years. The unit, which accounts for about 10% of revenue, was also dragged down by faltering prices for its investments in manufacturer Avantor and Tradeweb, a platform for buying and selling bonds. It’s a reversal from the second quarter of the year, when these investments gave results an uplift.

Other financial companies have reported similar pain: Investment bank Jefferies took a $146 million hit to its stake in WeWork. On the west coast, PayPal recently said its $500 million investment in Uber’s IPO had dropped 34%, while its stake in Latin American online retailer MercadoLibre fell 10%.

The tech unicorn boom and bust has elite venture capital investors at the epicenter. The dot-com bubble in 2000, by contrast, was partly a retail investor phenomenon, and the credit bubble in 2008 encompassed everyone from house flippers to Wall Street banks. The unicorn-linked writedowns now spreading to Wall Street demonstrate that this sort of economic pain is never isolated.

As Quartz’s Allison Schrager wrote earlier this month, public pensions have been investing in the private markets, where tech unicorns have raised the bulk of their funding, meaning teachers and firemen could eventually face some of the fallout. Many peoples’ lifestyles have been subsided by the private funding pouring into companies like Uber and Casper, allowing the upstarts to burn through cash to capture market share. Most people intuitively sense that a reckoning is coming.

That’s not to suggest the economy is headed off a cliff like it was a decade ago. At Goldman Sachs, other parts of its business, such as fixed-income trading, are showing renewed signs of life. But the aftershocks from declines in private-market valuations show that the financial system is still deeply interconnected, and that overindulgences have a way of showing up in unwanted places, like the banking sector or university endowments.

JPMorgan, meanwhile, could still see a payout amid the turmoil, as WeWork seeks a lifeline to avoid running out of cash. Having led the company’s now aborted IPO, the biggest US bank by assets is leading a $5 billion financing package for the beleaguered shared office space group, pitching investors on one of the riskiest junk bond deals in recent memory, according to Bloomberg. JPMorgan today reported its seventh-consecutive gain in quarterly profit.

 

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