Fear and aversion to tech startups

Startup workers in 2022 are looking forward to another year of cash-flowing IPOs. Then the stock market crashed, Russia invaded Ukraine, inflation soared, and interest rates rose. Instead of going public, the startups are starting to cut costs and lay off employees.

People are starting to dump their startup stocks too.

Phil Haslett, founder of EquityZen, which helps private companies and employees sell stock, said the number of people and groups looking to sell stock in startups doubled in the first three months of the year from the end of last year. He said the stock price of the $1 billion startup known as “unicorns” has plummeted from 22% to 44% in recent months.

“This is the first time people have seen a sustained decline in the market legally in 10 years,” he said.

This is a sign that the boom in the past decade, when startups made easy money, has declined. Every day on social media, warnings of an upcoming recession bounce between headlines about another startup job loss. And what was once considered the sure road to immense wealth—owning stock in startups—is now seen as a debt.

Rotation is faster. In the first three months of this year, U.S. venture capital fell 8% to $71 billion, compared to a year earlier, according to PitchBook, which tracks funding. At least 55 tech companies have announced layoffs or closures since the beginning of the year. According to Layoffs.fyi, which monitors layoffs, at this time last year, IPOs, the main means of monetization for startups, fell 80% as of May 4th from a year earlier, according to Renaissance Capital, following an IPO at this time last year.

Last week, the celebrity shoutout app Cameo; On Deck, a career services company; Financial tech startup MainStreet has all laid off more than 20% of its employees. Start paying quickly, and Halcyon Health, an online health care provider abruptly shut down last month. And grocery delivery company Instacart, one of the most valuable startups of its generation, reduced its valuation to $24 billion in March from $40 billion last year.

“Everything that has been true in the past two years is suddenly not true,” said Mathias Schilling, venture capitalist at Headline. “Growth at any cost is no longer enough.”

The startup market has gone through similar moments of panic and panic over the past decade. Each time the market fluctuated again and set records. According to PitchBook, venture capital funds raised a record $131 billion last year.

What has changed now, however, is the clash of troublesome economic forces over the past few years with the idea that entrepreneurial frenzy is natural. The decade of low interest rates that allowed investors to take greater risk in high-growth startups is over. The war in Ukraine is causing unpredictable macroeconomic ripples. Inflation is unlikely to ease in the short term. Even the tech giants are shaking, and shares of Amazon and Netflix are falling below epidemic levels.

“We said it felt like a bubble, but I think it’s a little different this time,” said Albert Wenger, investor at Union Square Ventures.

On social media, investors and founders The dot-com collapse in the early 2000s And emphasize that the retreat is “real”.

Even Silicon Valley venture capital investor Bill Gurley has returned to giving up after a decade of warning startups. “The ‘not learning’ process can be painful, surprising and disturbing for many people.” wrote in April.

Due to uncertainty, some venture capital firms have stopped trading. D1 Capital Partners, which participated in about 70 start-up deals last year, told founders that it had stopped new investment for six months this year. The company said the two men, who were aware of the situation, that all announced deals were concluded prior to the moratorium, declined to identify themselves as they were not authorized to speak on the records.

Other ventures have lowered the value of their holdings in response to a declining stock market. Better Tomorrow Ventures investor Sheel Mohnot recently said her company had the most devaluation in the first quarter of 88 out of seven startups it had invested in. The change is stark compared to just a few months ago, when investors begged founders to spend more money to grow faster.

Mohnot said that fact has not yet penetrated deep into some entrepreneurs. “People don’t realize the scale of the change that has taken place,” he said.

Entrepreneurs are experiencing the whiplash. Knock, a home-buying startup based in Austin, Texas, expanded from 14 cities to 75 cities in 2021. The company planned to go public through a Special Purpose Acquisition Company (SPAC) valued at $2 billion. However, as the stock market faltered during the summer, Knock was offered an offer to cancel these plans and sell to a larger company, but declined to go public.

In December, the acquirer’s share price halved and the transaction was halted. Knock raised $70 million from existing investors in March, laid off nearly half of its 250 employees, and added $150 million in debt in deals worth more than $1 billion.

Roller Coaster During the same year, Knock’s business continued to grow, said founder and CEO Sean Black. But many of the investors he put forward didn’t care.

“It’s disappointing as a company to know you’re breaking it, but they’re just reacting to what the ticker is saying today,” he said. “You have this amazing story and incredible growth and you can’t fight the momentum of this market.”

said Mr. Black his experience It wasn’t unique. “Everyone is going through this quietly, shamefully and shamefully, and they don’t want to talk about it,” he said.

Matt Birnbaum, head of talent at venture capital firm Pear VC, says companies need to carefully manage workers’ expectations of the value of startup stocks. He foretold a rude awakening for some.

“If you’re under 35 in tech, you’ve probably never seen a bear market,” he said. “What you get used to depends on your entire career.”

Startups listed at all-time highs in the past two years have been hit by the stock market far more than the tech sector as a whole. The share price of cryptocurrency exchange Coinbase has fallen 81% since its launch in April last year. Robinhood, a stock trading app that exploded during the pandemic, is trading at 75% below its IPO price. Last month, the company laid off 9% of its employees, accusing it of overzealous “high growth.”

SPAC, which has been the trending way for very startups to go public in recent years, has performed so badly that some are now going private again. Online healthcare startup SOC Telemed unveiled using these vehicles in 2020 and is valued at $720 million. It was acquired by investment firm Patient Square Capital in February for $225 million, a 70% discount.

Others are at risk of running out of cash. Canoo, an electric vehicle company that went public at the end of 2020 said It said on Tuesday that it had “substantial doubts” about its ability to continue business.

Blend Labs, a mortgage-focused financial technology startup, was worth $3 billion in the private market. Since its IPO last year, its value has fallen to $1 billion. Last month, it said it would lay off 200 employees, about 10% of its workforce.

Blend’s president, Tim Mayopoulos, blamed the cyclical nature of the mortgage business and the sharp decline in refinancing due to interest rate hikes.

“We are reviewing all costs,” he said. “High-growth cash-burning businesses are clearly not favorable from an investor sentiment standpoint.”

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