- Private market values for many tech startups have declined by 30-85%.
- Recent sales of stakes by laid-off workers have worsened valuation pressure caused by a capital funding drought.
- Most firms still remain valued at much higher levels than before the Covid-19 pandemic
As market values of technology startups have collapsed this year amid a venture capital drought, the declines have been exacerbated by laid-off Silicon Valley workers selling stakes in their former firms.
Tech start-ups reliant on venture capital and wealthy tech investors have had to recalibrate growth plans as that funding has plunged, the Financial Times reported earlier this year. In addition to finding other sources of financing, many startups have begun laying off workers as they try to conserve cash.
By itself, the capital funding drought pressured start-up market values. Now those values have fallen even further as laid-off workers sell. Some of those workers, depending on their vesting and/or ownership agreements, have had little choice but to sell, often within 60 days of their departure date.
Rainmaker Securities, which tracks private market transactions, said such sales occurring in the secondary market have come at prices 30-85% lower than late last year.
The declines mirror those of tech giants Amazon and Meta, whose shares investors have punished by 48% and 64%, respectively, this year. Each of those firms has laid off more than 10,000 workers in recent weeks.
Klarna, Chime, and Stripe, financial technology firms whose values surged in 2021, have laid off 10-30% of their workforce in recent months. The same goes for delivery firms Instacart and Nuro.
The valuations of those firms in private secondary markets—generally illiquid markets involving arranged transactions between specific buyers and sellers, as opposed to quickly negotiated trades via public stock exchanges—have declined dramatically. The price of Stripe's share sales declined 65% from transactions that occurred in late 2021; Klarna's share sales price fell 83% in the same time frame.
Many of these firms no longer resemble small startups. Chime Bank, which has received significant funding from global giant SoftBank, was valued at $25 billion when it last raised external capital in 2021. That's only slightly less than the median $28 billion market capitalization of a current S&P 500 company.
The recent valuation slide of many tech start-ups, though, follows a big valuation increase in early 2021, when funding surged amid an investing thaw after 2020's pandemic shutdowns and disruptions.
In addition, valuations for most firms founded prior to the pandemic remain considerably higher than before it hit. Stripe remains six times more valuable than its 2017 valuation, and the value of SpaceX—which has continued gaining value throughout 2022—has increased by a multiple of almost seven in the past five years.