important point
- The private market value of many tech startups is down 30-85%.
- The recent sale of shares by laid-off workers exacerbated valuation pressure caused by the capital-raising drought.
- Most companies are still rated much higher than they were before the Covid-19 pandemic.
That decline was compounded by laid-off workers in Silicon Valley selling stakes in their former companies as the venture capital drought destroyed the market value of tech startups this year.
Tech startups that rely on venture capital and wealthy tech investors have had to readjust their growth plans as funding plummets, the Financial Times reported earlier this year. In addition to finding other sources of funding, many start-ups are starting to lay off employees in an attempt to save cash.
As such, the capital-raising drought has put pressure on the market value of start-ups. Now, these values have fallen even further as laid-off workers sell off. Some of these workers had little choice but to sell, often within 60 days of his retirement date, depending on vesting or ownership agreements.
Prices for such sales, which occurred on the secondary market, are between 30% and 85% lower than at the end of last year, according to Rainmaker Securities, which tracks private-market transactions.
The drop mirrors the declines of tech giants Amazon and Meta, which saw equity investors slash prices by 48% and 64%, respectively, this year. Each of these companies laid off more than 10,000 workers in recent weeks.
Klarna, Chime, and Stripe, financial technology companies that have skyrocketed in value in 2021, laid off 10-30% of their workforce in recent months. The same applies to delivery companies Instacart and Nuro.
These companies in the private secondary market (generally illiquid markets involving arranged transactions between specific buyers and sellers, as opposed to fast-paced negotiated transactions via public stock exchanges) valuations have fallen dramatically. Stripe’s stock sale price is down 65% from a deal that occurred in late 2021. Klarna’s stock fell 83% over the same time frame.
Many of these companies no longer resemble small startups. Chime Bank, which raised a large sum of money from global giant SoftBank, was valued at $25 billion when it last raised outside capital in 2021. That’s just below his $28 billion, the current median market capitalization of S&P 500 companies.
However, the recent valuation declines for many tech startups follow significant valuation gains in early 2021, when funding surged amid a cooling in investment after the shutdowns and disruptions caused by the 2020 pandemic.
Additionally, valuations for most companies founded before the pandemic remain significantly higher than they were before the pandemic hit. Stripe is still worth six times his 2017 valuation, and SpaceX’s value (which continues to increase in value through 2022) has increased nearly seven times over the past five years. .
