Washington, January 24 After a year in which free-flowing capital fuelled unprecedented growth in so-called tech ‘unicorns’, the sector is bracing for a slowdown which could thin the herd. Unicorns — a term coined for the usually rare billion-dollar, privately funded start-ups — have been proliferating in the US, China and elsewhere as venture capital investors bet on the next Google or Facebook. But the prospect of a ‘bear market’ where prices are falling, combined with other factors, could send unicorns running for cover, observers who follow the sector say. Some warnings have already appeared. Venture-backed start-ups globally saw a 30 per cent drop in funding in the fourth quarter to $27.2 billion, according to a survey by KPMG and research firm CB Insights. A separate survey by 451 Research found more than half of tech investment bankers predict venture funding will tighten in 2016 compared to last year, the most bearish outlook since the 2008-2009 recession. Some unicorns have seen their value slashed by investors aiming to put a fair market evaluation on their holdings. Mutual fund firm Fidelity last year marked down value of its Snapchat holdings by 25 per cent. In this scenario, cash-hungry unicorns are likely to face a harder time getting fresh capital, said David Erickson, a senior fellow at the University of Pennsylvania’s Wharton School and former Wall Street banker who led technology share offerings. The weak stock market could impact private firms, potentially forcing a delay of initial public offerings (IPOs). If they need to raise cash, it will likely be ‘down rounds’ with a lower valuation than prior funding efforts. “Valuations will typically come down,” he said. Since the ‘softness might be prolonged, venture capital firms will be focused on protecting the value in their existing investments rather than spending too much time investing in new names’. Erickson said there are some similarities to the tech bubble of 1999-2000, even if the new firms have more developed business models. “While the companies are more seasoned, the issue similar to 2000 is that many are burning tonnes of cash,” he said. “If they need to have enough cash to break even and if they can’t access capital either through the public markets or private markets, then they face more difficult decisions.” Erickson added that ‘we are not quite at that dire stage now’, but that if capital dries up it may mean that promising start-ups would either need to sell themselves or ‘hit the wall’. The unicorn population — estimated by Forbes this month at 173 companies worth a collective $585 billion — is still alive, but some are hurting. CB Insights Chief Executive Anand Sanwal said he expects to see ‘some wounded unicorns’ but that there is still capital available from private equity and corporate venture funds.