Could This Blurred Line Emerging In Tech Explain Why The Snapchats Are Hurting The Twitters?

Robin Thicke, prescient market genius?

Probably not, but there is a blurred line that seems to be emerging between public and private tech companies, one that has become so real that Twitter, Etsy and Box could possibly blame their dramatic drops from their IPO pops on the likes of Uber and Snapchat, suggests a new note from Goldman Sachs.

Mutual funds, the report finds, are dramatically increasing their investment in private companies at largely the expense of public ones, especially small and mid-sized Internet stocks.

I’ve recently written about how tech stocks trading below their IPO prices, like Twitter, Fitbit and GoPro, generally seemed to suffer from a perception that their innovation pipeline was drying up, that they were gimmicks or that they were one-trick ponies. Goldman’s note points to factors in the venture environment also possibly squeezing these companies.

An increase in private equity supply and better marketing by private companies are driving “much of the multiple compression in the Internet sector,” notes Goldman.

Venture capital investment last year was nearly double was it was two years earlier, from $30 billion in 2013 to $59 billion in 2015, according to the note. During that time, mutual funds increased their investment in private companies 800%, to $27 billion from the $3 billion in 2013, a year when Uber was valued at a mere $3.5 billion, Snapchat was not yet a unicorn and Twitter shares were trading above $60.

This huge jump in funding by mutual funds would mean that “much of the supply would naturally come from small and mid-cap public competitors,” says Goldman.

Source: Goldman Sachs Research Note

Reflecting this potentially broader shift in tech investment, Snapchat and Twitter have gone in opposite directions since 2013. One is now one of the biggest unicorns in the world and the other saw its shares hit new lows earlier this month. Another possible indication is how the Internet sector without Facebook, Amazon.com, Netflix and Google’s Alphabet (FANG) is under-performing the collective performance of the big market cap FANG stocks.

“We are entering a rationalizing venture environment, which could lead to a reduction in multiple compression pressure among companies most exposed to hypercompetitive venture-backed competitors, such as GrubHub, LendingClub, and eBay,” adds Goldman.

In other words, someone tech bulls may yet still find themselves feeling like Robin Thicke — hating these blurred lines.