Dreaded ‘dip’ slashes billions from startup valuations

Aug 9 (Reuters) – Several high-flying startups are being brought down to earth as recent carnage in global stock markets and lackluster demand for new listings force companies to raise funds at a huge discount to their exorbitant valuations.

Easy money from venture capital deals is quickly evaporating in an inflation-driven high interest rate environment as many private investors scrutinize funding for startups, many of which could be years away from make profits.

Already top companies such as payments company Stripe, Swedish buy-it-now and pay-later company Klarna and delivery startup Instacart have seen their valuations drop by one or two this year.

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In the United States alone, 81 American companies had to review their valuations during their financing rounds, in what venture capitalists call a “downturn,” according to data from PitchBook.

Companies seeking seed money or start-up financing are also seeing their valuations challenged.

“Without an open IPO market and much lower late-stage capital availability today than in the past year, this increases the likelihood of these companies canceling funding rounds,” Kyle said. Stanford, senior venture capital analyst at PitchBook.

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After a meteoric run marked by multi-billion dollar record listings, the U.S. IPO market has come to a halt, with just eight companies managing a successful IPO this year – a 13-year low, according to reports from PitchBook and the National Venture Capital Association (NVCA). Read more

This leaves little room for private investors, including venture capitalists, to plan their exits and make their investments profitable, prompting companies to go for even lower valuations in order to attract new funds.

Instacart cut its valuation by 40%, citing market turmoil from runaway inflation and fears of a looming recession.

Cryptocurrency lender BlockFi and payments giant Stripe reportedly saw drops of 67% and 28%, respectively, in their valuations.

In July, Klarna raised capital amid a bear cycle that slashed its valuation by more than 80% to $6.7 billion, a far cry from the $46 billion price the fintech attracted. last year.

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“It will be very difficult for startups to maintain their elevated valuations in the current market, and a downturn might be best to level with founders and investors on the reality of the situation,” said Miguel Fernandez, co. – Founder and CEO. of Capchase, a New York-based investor.

U.S. companies raised $4.3 billion in IPOs in the first seven months of the year, a fraction of the record $102 billion raised during the same period in 2021, Refinitiv data shows. .

Even if the IPO market stabilizes in 2023, startups, especially those that struggle to break even or are notorious for massive cash burn, may face intense scrutiny from investors. on earnings and valuations.

“As such, we expect to see a wave of bearish IPOs when they hit the market,” said Matthew Kennedy, senior strategist at IPO research firm Renaissance Capital.

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Reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Anil D’Silva

Our standards: The Thomson Reuters Trust Principles.

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