December 16, 2015
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Another high-flying “unicorn” appears to be crashing to earth, in the latest sign that a correction is here for tech startups’ pie-in-the-sky valuations.
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Gilt Groupe, once among the hottest of New York startups with a $1.1 billion paper valuation, is in talks to sell itself to The Hudson’s Bay Co. for about one quarter of that pie-in-the-sky valuation, the Wall Street Journal reported Monday. The deal between the Toronto-based owner of Saks Fifth Avenue and the luxury goods flash sale retailer has not been finalized and talks could fall apart, the Journal noted.
A spokeswoman for Gilt declined to comment.
If a sale ends up going through at the reported price, which is less than the total venture funding Gilt has raised, it will mark yet another billion-dollar tech startup that has failed to meet private investors’ expectations. In just the past few months, Square Inc. has gone public at a lower valuation than venture capital firms bestowed, Good Technology Corp. has sold for less than half its highest private valuation, and Rdio Inc. has sold the bulk of its technology and intellectual property to Pandora Media Inc. for $75 million after raising $125 million in financing.
Gilt, founded in 2007, popularized the flash sale craze on the Internet with its initial “members only” discounts on high-end designer goods, such as Christian Louboutin shoes. In 2011, its revenue soaring, Gilt received an additional $138 million in venture funding that valued the company at $1 billion, with funding from Softbank Corp. and Goldman Sachs Group Inc. The company is currently listed in the Wall Street Journal Billion Dollar Club, which tracks the so-called unicorns in tech, with a $1.1 billion valuation. At the time, the company indicated to the Journal that its funding round would likely be its last before going public.
That appears to no longer be the case, as Gilt has gradually lost much of its sheen. Earlier this year, Gilt raised $50 million in additional funding at what was believed to be a lower valuation, bringing its total venture funding to about $286 million. Some of its co-founders have gone on to found other ventures, and Gilt now has many flash-sale rivals such as Zulily, which was bought less than two years after its IPO by Liberty Interactive Corp.’s QVC for much less than it once traded for on Wall Street.
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With unicorns slowing starting to go public, the results are being closely watched by Silicon Valley, venture capital investors and mutual funds, which have been writing down some of their investments in startups. If Gilt’s sale to Hudson Bay goes through at the reported price, it will be yet another example of a wildly high private valuation and a cautionary tale of how they can change.