All eyes in Silicon Valley are now looking cautiously at Jack Dorsey -- but not because of Twitter.
Square, the payments startup that Dorsey runs when he's not busy trying to save Twitter, revealed in a filing Friday that it plans to price its upcoming public offering at between $11-$13 per share.
At the mid-point of that range, Square would have a market cap of just under $4 billion, which sounds like a win -- until you remember that the company has reportedly had a private valuation of $6 billion only a year ago.
It is effectively a "down round," as Gil Luria, an analyst with Wedbush, put it in a tweet.
The offering price may tick up a bit as the IPO date nears. But there is danger here: if Square can't command a higher valuation on the public market than it did a year ago on the private market, are other unicorns, including Uber and Airbnb, next to see their worth diminished?
It's a real risk that the era of mind-boggling rising valuations is over. Given that Square, the most high-profile technology company to try for an IPO this year, is moving forward with a public valuation that is significantly below its private valuation, it could send a warning sign to the growing legion of so-called unicorns, or private companies valued at $1 billion or more.
"This is very much an acknowledgement that 'the public will pay more' regardless of the private market valuation was both magical and misguided thinking," says Lise Buyer, an analyst with Class V Group, who helped plan Google's IPO.
"From that vantage, this IPO's potential valuation has unmistakable implications for those among the 'unicorn' herd with fanciful private market price tags."
Dozens of companies have raised jaw-dropping sums of money from private investors at lofty valuations, which they then use to stay private longer without having a need to access capital on the public market.
And so it is that you have businesses like WeWork and Dropbox valued at $10 billion while Uber is valued at more than $50 billion.
These are private valuations, however, negotiated quietly among millionaires and billionaires in the prediction business of venture capital. Investors on Wall Street, who represent a much larger cross section of people beyond the tech industry, can always call bullshit.
That matters to private investors who at some point are dependent on seeing some of these unicorns achieve a successful exit, either in the form of an acquisition (which if tough when you're valued in the billions) or from a public offering (which have been few and far between recently).
Can Uber go public for more than $50 billon? Sure! Can Dropbox go public for more than $10 a share ?
Here's the internet-approved answer: ¯\_(ツ)_/¯
Square has good reason to be conservative with its public offering. It lost $154 million in 2014, according to its IPO filing. The market has been turbulent throughout this year, with investors showing less patience for high-growth technology companies. And, oh yeah, Square is sharing its CEO with another public company that is trying to pull off a turnaround. Yikes.
Even if you believe Square's pricing says more about Square than about the private tech market, it nonetheless plays into an unfortunate trend.
Box, another promising technology company, held its public offering at the beginning of this year with a valuation of $1.7 billion, below its private market valuation of $2.4 billion. Hortonworks, an enterprise software developer once considered a unicorn, priced itself out of that club at the time of IPO.
The next question: if the era of rising valuations is ending, are unicorns really prepared? We asked that question a while back. Some of them are, by hoarding money to carry them through tough times to come.