Investment market: falling upwards

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Text by Pyr Marcondes, Senior Partner at Pipeline Capital Tech.

When the pandemic began and triggered the economic and business stoppages that we all know and have been experiencing since March 2020, analysts and risk investors imagined that there would be a downturn in investments in the market for early stage and scale up companies. Because the exact opposite happened and the pandemic pushed the market into one of the strongest bulls ever recorded. Notably within the scope of tech driven companies.

Now, as a geopolitical crisis unfolds and the stock market tends, naturally, to become more sensitive and unstable, pointing to a fall, exactly the same fear is projected that flourished in 2020. And the shares of some of the big techs started to register important declines.

Ditto in the startup market. According to Crunchbase data, they raised $10 billion less in February compared to January of this year – the first such monthly drop in years. Late-stage funding dropped 19%, from $41 billion to $33.2 billion, over the same period. And the early stage fell 17%, from US$ 18.4 billion to US$ 15.3 billion.

But let’s pay attention. Even with a $10 billion drop, February 2022 still outperformed February 2021 by 24%.

Nearly 200 companies went public via SPAC last year, and a record 296 venture-backed companies were publicly listed, according to PitchBook. But performance has not been good since then.

Market analysts are crossing data and conjectures about what, in detail, is actually happening with investments in the financial stock market. And one of the takeaways is that mature assets or established companies may be too expensive right now. And with a not very exciting performance retrospective.

According to Forbes, too many highly anticipated public listings have destroyed its market value this year. Cryptocurrency trading platform Coinbase, which went public through a direct listing, started trading at $390 a share; the company was trading at $190 a share at market close on Thursday. Clover Health went public through a SPAC in January and started trading at $15.30 a share; closed Thursday at $3.61.

Mark Goldberg, a partner at Index Ventures, told Forbes that this underperformance — and the resulting reduction in company valuations — makes the late-stage market less attractive.

And? Hence, investments are migrating to younger assets. Tiger Global, for example, has made half of the deployments of its latest $12.7 billion fund to Series A and Series B companies, according to an investor letter made public last week.

How much the war will further affect these movements is difficult to say. But I risk projecting here that we are experiencing one (yet another) accommodation of the capital and investment markets that we have been experiencing for decades and decades. That the bubbles now, after the ones we’ve already experienced, make everyone alert. That this movement was perhaps necessary anyway. And that it is possible that 2020 will repeat itself. Let’s wait.

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