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The demise of Fast shows that, The years-long startup boom is undergoing a sharp correction. Soaring inflation, supply chain disruptions and the war in Ukraine are sparking a wave of uncertainty sweeping the global economy. It hits young tech companies particularly hard because the present value of their profits, much of which lie in the distant future, is being eroded by rising interest rates. “It’s like a stun grenade hitting the market,” said one Silicon Valley veteran. The shock wave hit the venture capital (vc) industry, which was trying to identify and nurture the a google.
The startup downturn is just beginning. Investors are warning their portfolio companies to keep enough money in the bank until 2025. Many companies won’t be able to do that and go the Fast way. Others will stick with it. Some may even succeed because founders have learned to go easy on the bells and whistles and double down on their core business. When the dust settles, the global startup scene will be different, and possibly healthier.
in vc-dom. Non-traditional investors flock to speculative startups: venture capital arms of major corporations from Salesforce to Exxon Mobil, New York hedge funds Coatue and Tiger Global, Wall Street buyout tycoons and other “tourists” as they play in vc in the heart of Silicon Valley. From Beijing to Bangalore, new tech hubs have sprung up around the world.
No year has been fatter than 2021. According to cb research firm Insights has raised $621 billion in 2021. This is double the previous year and ten times the 2012 level. Then the music stopped. First feel that it is a public company. The tech-heavy Nasdaq composite index was up from November last year The peak fell by 30%. Data provider PitchBook estimates that there are more than 140 vc-backed companies in the US since then The 2020 market cap of going public is less than the total amount of venture capital raised in their lifetime. American electric car maker Faraday Future has raised more than $3 billion in funding and is now valued at just $710 million. Singapore-based super app Grab raised $14 billion at a $40 billion valuation before going public. Today, it has a market cap of $10 billion.
techno beatless is now spreading to the private market. Fundraising has slowed sharply compared to the second half of 2021. U.S. funding rounds fell 7% between March and May compared with the same period last year, according to PitchBook data. Asia was down 11% and Europe was down 19%. It’s almost certainly worse than the numbers suggest. Delays in reporting mean they are months behind local reality. vc Investors say hardly any deals are signed these days. Fewer startups also “exit”, vc are listed or sold to The jargon of other investors.
Investor silence is having an impact on private market valuations. Such declines typically only manifest themselves in private funding rounds or public listings, when companies raise capital in exchange for equity, or when companies change hands. Fewer fundraisers and fewer exits make this harder to assess.
ApeVue, a data provider that tracks what’s going on by tracking stock prices on the secondary market, can buy and sell shares in private companies. An equal-weighted index of the 50 most-traded startups has fallen 17% since its peak in January. Using data from ApeVue, The Economist estimates that 12 large startups that were worth $1 trillion at the start of the year are now worth about $750 billion. The list includes fintech star Stripe, whose secondary-market shares have fallen 45 percent since January, and TikTok’s Chinese parent company ByteDance, whose shares are down a quarter of what they were six months ago.
Secondary market valuations for private companies have not fallen as much as public companies. So far this year, ApeVue’s index is down about ten percent compared to the Nasdaq Composite . Comparing private companies with listed competitors shows the same pattern. Shares of private meatless meat supplier Impossible Foods have fallen 17% since January, while shares of publicly traded rival Beyond Meat have fallen 61%.
This may mean that the valuation of startups is more robust than that of public companies. Alternatively, they could fall further. The ultimate test will be the number of “drop rounds” in which companies raise new capital at lower valuations than before. The founders don’t like these, not the fall in the secondary market. A falling round is a clearer indicator of falling value. They also damage the morale of employees, who are often paid through stock options. They make vc companies forced to lower the value of their investments, which is not what they want need. LPs want to hear.
Only a few rounds of declines have been publicly reported. Last month as an example, The Wall Street Journal Swedish fintech company Klarna is seeking fresh funding at a valuation two-thirds below its last funding round a year ago, reports said. In March, grocery delivery company Instacart took a more unusual move, lowering its valuation to $24 billion from $39 billion in March last year, but did not raise new capital.