Venture Capital Feels the Stock Market’s Pain

Some companies are delaying IPOs as valuations fall and money gets tighter

By Lori Ioannou

July 4, 2022 10:00 am ET

The rout in the stock market has cast a shadow over the private-equity market, with valuations tumbling for many companies and some delaying plans to go public.

“Fears over the falling stock market, inflation and a potential U.S. recession have spilled over to the venture-capital industry, and multiples on mid- and late-stage valuations are rapidly compressing,” says Asheem Chandna, a partner at Greylock Partners.

Valuations aren’t down across the board. But venture capitalists say the situation is worsening for many companies as investors become more selective. “There is a flight to quality among investors,” says Andy Areitio, general partner at TheVentureCity, a global startup fund.

Mr. Chandna says companies’ business plans are getting more scrutiny and investors are looking for more evidence of financial health. “They are not solely valuing companies on revenue-growth projections; they are looking harder at a venture’s free cash flow,” he says.

Deal-making has slowed overall. U.S. venture-capital funds invested about $47.5 billion in 2,251 deals during the second quarter through June 15, versus about $70 billion in 3,369 deals in the first quarter, according to CB Insights. And in the secondary market for private equity, Forge Data says 55% of the equity offered for sale on its trading platform in May was offered at a discount to the companies’ valuations per share, compared with 47% in March and 35% in January.

Some venture capitalists say they are advising companies in their portfolios to shore up their balance sheets and focus on sustained growth to weather the economic turbulence ahead. Some companies are delaying plans for initial public offerings of stock.


Want to receive more content like this in your inbox?