It isn’t as if venture funding has totally dried up. In the fourth quarter, financing for U.S. startups fell 6.6% to $17.13 billion, the lowest in five quarters but still approaching dotcom-boom levels.

This month, Magic Leap Inc., which has yet to release its “mixed reality” glasses—which overlay virtual images on the real world—raised $794 million in funding at a valuation of $4.5 billion. Car-hailing service Uber Technologies Inc. continues to reach new heights, raising funding in December that valued it at over $60 billion, a record for a private venture-backed company.

Venture capitalists say the pace of these huge deals is rapidly slowing, especially after tech stocks declined drastically on Feb. 5. That exacerbated the already wide valuation gap between high-price private tech shares and their public peers.

Some companies are raising funding by selling shares at lower prices than they had in earlier rounds. Such “down rounds” can hurt a startup’s chances at recruiting and discourage employees who are often paid with stock options.

Location-sharing mobile-app company Foursquare Labs Inc. raised cash in January selling shares at a 69% discount from the previous price, according to corporate documents provided by research firm VC Experts. Delivery startup DoorDash this week sold shares at a 16% discount. A DoorDash spokesman declined to comment.

Eoin Treacy's view

The valuation of privately held companies is dependent on the largesse of private equity firms which in turn are heavily influenced by the rates they pay to source finance. As a result the spike in high yield spreads has had an impact on the valuations of so-called “unicorns”. 

We have often described the rally that has been in evidence since 2009 as liquidity fuelled. As the Fed ever so gradually unwinds its extraordinary monetary stimulus we are beginning to see just which parts of the market were most dependent on access to free money. For privately held, high growth companies it all comes down to cash flow. 

With pressure easing over the last week, the Bloomberg IPO Index has found at least short-term support and a reversionary rally is looking more likely than not. 

With financing drying up, companies may be more willing to prepare for a listing than they have been previously. Equity might be expensive but it is available and if the dearth of fresh capital from other sources persists, companies will have little choice but to find other avenues.