Tech valuation reset, now what? 📉
How to seize opportunities and avoid pitfalls in private markets
News on the tech valuation front has not been rosy since the beginning of the year; Tech giants lost more than $1 trillion in value in the last three trading days. After delivering incredible growth during the pandemic, and benefitting from sky-high valuation the correction has been brutal. From Robinhood, Shopify, Netflix to Lyft, Palantir, Rivian and Peloton, to only name a few, the pain has been felt across the technology board. After creating hundreds of thousands of workers, companies such as Amazon and Meta have frozen their hiring plans and even started to let go employees.
The private markets have also started to see serious re-ratings and changes in behaviors. Tiger Global renegotiated its investment offers to Blockdaemon and Veriff in part due to the sell-off in public tech stock. Goldman Sachs advised some scaleups to hold off on IPO listings. While Softbank advised well-funded founders to turn down fundraising offers if they are lower than anticipated. IGM, on its end, marked down the valuation of Wealthsimple by 20%.
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Public and Private tech companies are being squeezed from multiple sides;
📉 Rising interest rates
When money was cheap, thanks to historically low interest rates, and investors starved for returns, tech companies have focused on growth versus profitability. Now that investors can get growing, guaranteed returns from government bonds, the flow of cheap and undiscriminating money is drying out. To attract new capital, tech companies will have to show a path to profitability in the near future.
📉 Stalling Covid 19-related growth
The reopening of restaurants and shops put a dent in the e-commerce industry.
📉 Increasing wages
The war for talent on the engineering side, as well as pressuring wages for drivers and warehouse workers, are increasing the load on companies’ financials.
📉 Supply-chain tension
Covid-19 lockdowns in China is creating additional pressure on the supply-chain for physical items, such as iPhones.
📉 Inflation - slowing economy
Inflation is at a 40 year high, creating pressures on consumer spending power and demand.
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What does it mean for early-stage investors already in the market?
📉 Stay close to your portfolio.
📉 Update and optimize the financials.
📉 Update and optimize the strategy.
📉 Get ready for down rounds.
What does it mean for early-stage investors who want to continue or start to allocate capital?
📉 Be mindful of your risk tolerance.
📉 Invest in down rounds.
📉 Fly towards quality.