Some investors are cutting back their funding and pushing for lower valuations, venture capitalists say.
The poor performance of companies going public last year has put a damper on the venture capital market.
Some investors are cutting back their funding and pushing for lower valuations, and IPOS will likely be less frequent going forward, venture capitalists told The Wall Street Journal.
The companies that did initial public offerings, direct stock listings and special purpose acquisition company, or SPAC, listings in 2021 saw their stocks slide 32.6% on average through Jan. 28, according to Jay Ritter, a finance professor at the University of Florida, The Journal reports.
And it was worse for companies that don’t have much sales. Those with less than $10 million in revenue when they went public dropped 40.8% in the period, Ritter said. The decline was a more modest 28.4% for companies with more than $10 million in revenue, he said.
The cooldown in venture capital might be a good thing for a market that some said was looking like a bubble late last year.
Fred Wilson, a partner at big-time VC investor Union Square Ventures noted in a November blog entry that $100 million investment rounds had become common for companies that don’t yet have a sustainable business model.
“I think they [investors] are being delusional, comforted by the likelihood that someone will come along and pay a higher price in the next round,” he said. “But it seems that person may also be delusional. Because when you model things out, the numbers just don’t add up.”
According to data from StockAnalysis.com, there were 1,058 U.S. stock market IPOs in 2021. That was 120% more than 2020’s record 480 IPOs.
