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Start-up employees entered 2022 expecting another year of cash-guzzling initial public offerings. Then the stock market crashed, Russia invaded Ukraine, inflated inflationand interest rates rose. Instead of going public, start-up companies began cutting costs and laying off employees.
People also started to dump their starting stocks.
Phil Haslett, founder of EquityZen, which helps private companies and their employees sell their shares, said that the number of individuals and groups trying to vacate their newly formed shares more than doubled in the first three months of the year compared to the end of last year. Share prices of some billion-dollar startups known as “unicorns” have dropped from 22 percent to 44 percent in recent months.
“This is the first sustained pullback in the market that people have seen in legal 10 years,” he said.
what kind of sign is this The easy money-earning enthusiasm of the start-up world The influence of the last decade has waned. Every day, warnings of an impending decline bounce around social media headlines about a new round of layoffs. And what was once seen as a sure path to enormous wealth – owning startup stock – is now seen as a liability.
The turnaround was fast. In the first three months of the year, venture financing in the United States fell 8 percent from the previous year to $71 billion, according to PitchBook, which tracks funding. At least 55 tech companies have decided to layoff or close since the beginning of the year. According to Layoffs.fyi, which tracks layoffs, this time last year, IPOs, the main route for cash outflows for startups, fell 80 percent from a year ago, as of May 4.
Last week, Cameo, an application that makes the voices of celebrities heard; On Deck, a career services company; and MainStreet, a fintech startup, laid off at least 20 percent of its employees. Fast, payment initiation and Halcyon Health, an online healthcare provider, shut down abruptly last month. And grocery delivery company Instacart, one of the most valuable start-ups of its generation, devalued increased from $40 billion last year to $24 billion in March.
“Everything that has been true in the last two years is suddenly not true,” said Mathias Schilling, a venture capitalist at Headline. “Growth at all costs is no longer enough.”
The start-up market has survived similar moments of fear and panic over the past decade. all time the market roared back and broke records. And there’s plenty of money to keep money-losing companies afloat: Venture-capital funds raised a record $131 billion last year, according to PitchBook.
What is different now, however, is the clash of troubling economic forces combined with a sense that the fledgling world’s frenzied behavior over the past few years is due to a showdown. The decade of low interest rates that allowed investors to take greater risks in high-growth start-ups is over. The war in Ukraine causes unpredictable macroeconomic fluctuations. Inflation is unlikely to fall any time soon. Even big tech companies are faltering as Amazon and Netflix shares drop below pre-pandemic levels.
“All the times we’ve said we felt like a bubble, I think it’s a little different this time,” said Union Square Ventures investor Albert Wenger.
On social media, investors and founders have constantly issued dramatic warnings, comparing negative emotions with those of negative emotions. The dot-com crash of the early 2000s and emphasizing that a pullback is “real”.
Even Bill Gurley, a Silicon Valley venture capital investor, has grown tired of warning startups about bubbly behavior over the past decade. he gave upis back in form. “The process of ‘don’t forget to learn’ can be painful, surprising and uncomfortable for many,” he said. Wrote in April.
Uncertainty has caused some venture capital firms to stop making deals. D1 Capital Partners, which participated in nearly 70 start-up deals last year, said this year it stopped investing in its founders for six months. The firm said any announced deals were made before the moratorium, with two people familiar with the situation refusing to reveal their identities as they were not authorized to speak on the tapes.
Other venture firms have devalued their assets to adjust to the falling stock market. Better Tomorrow Ventures investor Sheel Mohnot said his firm has lowered the valuation of seven startups it has recently invested in from 88, the largest figure it has ever made in a quarter. Compared to just a few months ago, the change begging the founders Spend it to get more money and grow even faster.
Mr Mohnot said that this fact is not yet understood by some entrepreneurs. “People are not aware of the scale of the change that is occurring,” he said.
Entrepreneurs live the whiplash. Knock, a home purchase startup in Austin, Texas, expanded its operations from 14 cities to 75 in 2021. The company planned to go public through a special purpose buyout or SPAC, valuing it at $2 billion. But when the stock market got rocky over the summer, Knock canceled those plans and made an offer to sell himself to a larger company, but refused to disclose.
In December, the acquirer’s share price dropped in half, killing the deal as well. Knock eventually raised $70 million from existing investors in March, laid off about half of its 250 employees, and added $150 million in debt to a deal worth just over $1 billion.
Founder and CEO Sean Black said Knock’s business continued to grow throughout the roller coaster year. But most of the investors he offered didn’t care.
“It’s frustrating to know that you’ve been crushed as a company, but today they just react to whatever the stock market says,” he said. “You have a great story, this incredible growth, and you can’t fight that market momentum.”
Mr. Black said his experience was not unique. “Everyone is quietly, embarrassingly, embarrassingly going through this and not willing to talk about it,” he said.
Matt Birnbaum, head of talent at venture capital firm Pear VC, said companies need to carefully manage employee expectations around the value of startup stocks. For some, he predicted a rough awakening.
“If you’re 35 or under in technology, you’ve probably never seen a decline,” he said. “What you’re used to is right and true your entire career.”
Start-ups that went public at the highest levels of the last two years are taking a harder hit in the stock market than the overall tech sector. Shares on cryptocurrency exchange Coinbase have dropped 81 percent since its launch in April last year. Stock trading app Robinhood, which exploded during the pandemic, is trading at 75 percent below its IPO price. company last month laid off 9% of its staffaccuses over-enthusiastic “overgrowth”.
SPAC’s trendy way Going public of very young companies has performed so poorly in recent years that some are now moving back into the private sector. SOC Telemed, an online healthcare provider, went public using such a tool in 2020 and was valued at $720 million. In February, Patient Square Capital, an investment firm, acquired it for approximately $225 million at a 70 percent discount.
Others are in danger of running out of cash. Canoo, the electric vehicle company that went public in late 2020, I said He reported Tuesday that he had “substantial doubt” about his ability to stay in the job.
Blend Labs, a financial technology startup focused on mortgages, was valued at $3 billion in the private market. Its value has dropped to $1 billion since it went public last year. Last month, it said it would lay off 200 workers, or roughly 10 percent of its staff.
Tim Mayopoulos, president of Blend, blamed the cyclical nature of the mortgage business and the sharp drop in refinancing that accompanied rising interest rates.
“We’re looking at all our expenses,” he said. “High-growth cash-burning businesses are clearly out of favor from an investor sentiment perspective.”
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