Stemcentrx and the New Startup Dispersion

But make no mistake. It is a big deal in dollars and symbolism.

First, it is one of the largest sales of a VC-backed tech company in history. It is one of the biggest biotech deals of all time. And it’s a big exit for Founders Fund, which put $300 million into Stemcentrx in its largest-ever investment.

It’s also a sign that the late-stage private tech writedowns aren’t necessarily predictive of outcomes.

“Fidelity marked us down 40% while we were trending upwards,” Slingerland told me, noting that he was told the decision was driven purely by an audit committee and that the portfolio manager didn’t agree. (A Fidelity executive talks about its private tech investing here.)

“It is insane to have an audit committee determine your valuation,” he added, saying the writedown earlier this year caused anxiety among multiple parties that had been interested in acquiring Stemcentrx. “The assumption [with a writedown] is that the investors know something. They didn’t.”

“I do get a kick out of this whole unicorn thing that turned into ‘Let’s kick the unicorns in the shins.’”

But “now it almost seems like it is swimming in the other direction,” Slingerland added, saying sentiment about the unicorns appears to be on the upswing again.

Lesson Number Two

Beyond the debate about valuations, the deal was symbolic for Silicon Valley in a less obvious way. It’s the latest sign that, as innovation in Silicon Valley evolves, it’s not evolving in any one direction.

The consumer Internet (including mobile) era is on its last legs. Its poster children—Google and Facebook—are moving beyond it. Alphabet is pursuing health, robots and cities. Facebook is building Internet infrastructure. "If you told me 10 years ago I'd be building a plane, I would've said you're crazy," Mark Zuckerberg said at F8 as he held a fixed-wing, Internet-beaming drone.

“I do get a kick out of this whole unicorn thing that turned into ‘Let’s kick the unicorns in the shins.’”

Stemcentrx fits squarely in this trend. The eight-year-old company, which spent its first two years just figuring out what cells to target in its cancer-killing project, is far afield from the currently buzzy areas of apps, bots or the on-demand hysteria. The approach the company settled on was a big departure from existing cancer research. Instead of targeting all the cells in the tumor, Stemcentrx tries to target the cells that are driving the cancer, even if those cells don’t show up broadly.

The company skyrocketed to a valuation of $5 billion-plus without ever having a drug approved—it has several in trials and Slingerland has “a high degree of confidence” that Stemcentrx’s lung cancer drug will be successful in humans. (AbbVie expects to launch it in 2018.)

Biotech in the Valley isn’t new, of course. But private biotech M&A is generally small deals for single drugs. But with the sale, Stemcentrx will accomplish what has eluded many private unicorns: the return of meaningful money to shareholders who have invested hundreds of millions of dollars.

Slingerland said they sold because they didn’t want to handle commercialization solo. “To build out that global organization—that would require a massive number of new hires and we would have to catch up where the pharmaceutical industry currently is.”

Stemcentrx isn’t the only one quietly building sleeper hits. Remember Cruise Automation, the self-driving technology company that came out of nowhere to sell for more than a billion dollars to General Motors in March? While investors and reporters fixated on Twitter and Yahoo, big things were happening in autonomous sensors and software.

As the opportunity pool diversifies, investors will have to shift their approach. Spotting winners may be less about acquiring expertise in one domain and more about spotting talented teams across domains. There’s no reason legacy Internet investors can’t remain relevant—Founders Fund and Sequoia Capital were in Stemcentrx. But they are going to have to scour more areas and partner with more domain experts.

It’s important to consider this shift in light of attitudes that Silicon Valley has peaked. I’ve never believed that’s true, but there are days when I’m at a loss to identify a startup that excites me.

But then I realize I am looking in the old places—the cafes off University Avenue or whatever is new in the app store. Consumer tech is dying but new things are growing all around, and in the Bay Area. (Cruise is based in San Francisco.) What’s coming next is harder to spot but no less exciting.