Here at TechCrunch we keep tabs on the stock market.1 And the stock market has turned into an awful vomit-machine lately, puking up last year’s gains onto its own shirt, and, by extension, the larger technology market and startup-land.
Not that this should be news per se; if you have been tracking the markets at all – or reading TechCrunch, I might add – you are aware of the general direction of things. That’s good. But things have kept getting worse to the point that it’s time to sit back, and wonder where the hell the bottom is for tech stocks.
Long-term bulls of tech companies, and especially the more modern SaaS and on-demand companies that have gone public in recent years, love to argue that over a long-enough time horizon nothing happens today matters. And there is some truth to that. But that’s a perspective that the already wealthy can take; for the rest of the world, the market’s shorter-term movements do matter.
There are obvious connections between the stock market and startups. A few for flavor: As stocks fall, LPs have less money, and may be less interested in putting capital into VC funds; falling stock prices makes it harder to price acquisitions attractively; a depressed stock market can close the IPO window, limiting exits. And falling share prices can limit the prices at which startups raise, as their comps are in free fall. It’s a long list.
Not that your friendly, local seed-stage startup should be waking up at 3 am to check futures data for US markets. Not at all. But tracking the public comps for your sector here and there? Yeah, that’s smart.
So let’s do just that. Some damage, starting from a high-level, and then getting a little bit more precise (52-week-high data from Yahoo Finance, change calculated to closing price today, rounded to nearest point):
- Nasdaq Composite change from 52-week high: -21%
- Innovation stocks change from 52-week high ($ ARKK): -56%
- Cloud stocks change from 52-week high ($ WCLD): -45%
- Fintech stocks change from 52-week high ($ FINX): -47%
Holy hell, that’s some damage. Today alone the Nasdaq lost 3.6%, and cloud stocks fell 4.4%. It’s a mess out there.
What’s going on? A combination of rising interest rates, the end of the pandemic trade more generally, decelerating growth rates at some public tech companies and a general reversion toward what we might call historical pricing norms.
That last bit is terrifying, because if it turns out that the long-term average revenue multiple for, say, software companies is 8x revenues and not 15x or 25x or more, a lot of startups are going to suffer when they have to translate a fundraise from the market peak to a later fundraise at more parsimonious levels.
More as the market evolves, but maybe some worry is warranted as we still don’t know where the bottom really is for tech stocks.
- OK, it’s mostly just me, but who cares.