Since the beginning of 2022, public tech markets have dropped significantly, with the Nasdaq index decreasing by 29%. As a consequence, the IPO market has sharply declined by 58% compared to H1-2021, with only $95B raised globally and many Pre-IPO companies postponing their IPO timeline.
Evolution of Nasdaq and SC Private Tech Index [1]
[1] Monthly median of Nasdaq Composite Index. SC Private Tech Index consists of data observed in sellers’ ask prices of 14 actively traded private tech companies with a valuation above $8B.
In the private market, tech companies’ valuations are following a similar trend, with the usual three to four months lag, particularly large Pre-IPO companies, which turned out to be overpriced under the previous bullish market condition.
As seen in the graph above comparing SC Private Tech Index of 14 private tech companies with the Nasdaq, private tech companies’ valuations kept rising at the beginning of 2022, and significant value adjustments have only been seen since April and May, trending toward the decreasing public market.
Some of the largest unicorns lost a significant portion of their valuations, such as Klarna (-85%), Epic Games (-46%) or Stripe (-28%), while most of them have continued to experience impressive growth, on-plan performance as well as leading market positions.
This significant valuation adjustment of large pre-IPO companies demonstrates that our strategy focused on companies with high growth, well ahead of IPO, profitable or cash self-sufficient, backed by tier one investors, and with entry value discounted to last round or listed peers, is more resilient and benefits from better downside protections.
In this market condition, Secondary Capital remains disciplined and sticks to its investment criteria. As private markets need a few months to adjust to the public market valuation trend, we believe this new market cycle represents a remarkably favorable market timing for value investments in high-profile companies with attractive entry prices and strong fundamentals.
Source: Reuters, EY IPO Watch, brokers