LinkedIn plunge a warning for start-ups: VC

Case for staying private
Case for staying private

For start-ups vying to trade on the public markets, Friday's technology sector rout may prove a cautionary tale, one expert told CNBC.

It's a "show me" market, and everyone's skeptical, even of companies that are doing well and making smart moves, said Joe Lonsdale, co-founder of secretive software company Palantir Technologies and a venture capitalist at Formation 8 Partners.

"You have a lot of investors who've been willing to suspend disbelief for a while," Lonsdale told CNBC's "Squawk Alley" Friday. "At this point, people are asking, 'Are you actually going to be able to keep growing?' And they're punishing the unicorns and punishing the public companies the same way."

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From Mark Cuban to Fred Wilson, high-profile Silicon Valley investors renewed calls this week for more companies to file for public offerings coming out of the slowest year for the tech-IPO market since 2010. But Lonsdale said with an economy like this one, you can't really blame companies that want to steer clear of the stock market.

"I'm an investor and a shareholder in a lot of these private companies," Lonsdale said. "I wouldn't mind for some of them to be liquid, personally. But would I want to be CEO of LinkedIn today as a public guy or private guy? I'd much rather be private."

Despite topping analyst's earnings and revenue expectations in the fourth quarter of 2015, shares of social media company LinkedIn tumbled 40 percent Friday after announcing weaker-than-expected forward guidance the previous evening. It wasn't the only technology firm to be battered: Companies like Tableau and Splunk saw chunks of their value wiped out, while the Nasdaq slid nearly 2.5 percent, dragged down by Amazon, Facebook, Apple, Microsoft and Alphabet.

But while retail investors may be pulling back from LinkedIn and other technology companies, Lonsdale isn't keen to bet against them.

"These guys own a really powerful network, and they're layering the [educational website] Lynda network on top of that," Lonsdale said of LinkedIn founder Reid Hoffman. "I think they have a really good five- to 10-year plan. I think it's really tough to be a public company in this market, as you're seeing today."

— CNBC's Gina Francolla contributed to this report.