附近上门

Editor鈥檚 note: Mergers & Money is a monthly column by Senior Reporter Chris Metinko that covers dealmaking and the flow of venture capital in the enterprise tech space.

The news of tech stocks tumbling and crypto declines has been hard to avoid.

This week has added to what has become a bad start to 2022 for many public tech companies. The decline鈥攂rought about by rising inflation and global tension鈥攈as affected the share prices of everything ranging from tech stalwarts like and , to much younger, sexier names like , and . Thus far this year, the Industrial Average is down about 5 percent and the Composite, a good indicator of tech prices, is down more than 12 percent.

After seeing plummeting share prices in the public market, it can be hard to rationalize the billion-dollar-plus鈥攐r $10 billion-plus鈥攙aluations we continue to see seemingly everyday in the private market. However, while it鈥檚 likely the recalibration we are now seeing in the public market will eventually hit Silicon Valley and other venture hubs, its effects鈥攁nd intensity鈥攎ay take some time.

鈥淭here is a very good chance the private market will see some of that hurt come down to them,鈥� said , founder and managing partner at , told 附近上门 News. 鈥淏ut there is a lot of money right now firms have to put to work.鈥�

Dry powder

That money currently sitting in venture funds is one reason no one should expect the venture capital firehose鈥�which broke records last year鈥攖o run completely dry any time soon.

Large firms have been extremely successful through the past few years raising more and more money from limited partners, endowments and others to create bigger and bigger funds. That money was invested into those funds with the idea of generating even more money鈥攏ot sitting idle and doing nothing鈥攕o VCs need to do something with it.

The growth of funds is one reason valuations keep rising and nearly 600 unicorns were minted last year alone.

鈥淔unds are getting bigger,鈥� said , CEO and co-founder of . 鈥淪o these valuations go up because you have to write bigger checks.鈥�

Coming back down to Earth?

However, Tusk is one of many VCs who believe there is a significant disconnect between private market valuations and public market valuations.

On Monday, , a general partner at , , 鈥淟aws of physics are back,鈥� after the stock markets took a sharp downward turn before rallying to finish the day.

Other VCs also believe the market is pointing to a correction as price-to-earning ratios in the public market鈥攁 key indicator that helps investors figure out market value of a stock as compared to the company’s earnings鈥攈ave started to come back down to Earth, although still above the traditional 15x to 20x earnings investors like.

Despite those numbers and the market downturn, venture deals announced this year have not seemingly been significantly affected so far.

According to 附近上门 numbers, venture money to U.S.-based startups actually slightly increased through the first 25 days of the year compared to last鈥攁lthough deal flow is down, with about 500 fewer rounds being announced thus far compared to 2021.

There are, however, two things to keep in mind when reading into those numbers. First, deal flow may be down because valuations are up鈥攎eaning more money is going into those individual funding rounds.

Secondly鈥攁nd on the other side of the spectrum鈥攊t is also important to remember most of these deals announced in 2022 were actually closed in late 2021, well before the public market got wobbly and folks may have started thinking about investing differently.

What to do?

Not surprisingly, some VCs are recommending founders and entrepreneurs tread carefully during this time.

鈥淔ounders just need to be prudent with their capital and make sure they are hitting their numbers right now,鈥� Bloomer said.

However, the venture market has proven robust over the last several years and technology has proven key to our modern lifestyles, so a significant decrease in venture funding even as the public market sways is far from a certainty.

鈥淭here may be a bit of a pullback, but also there is a ton of room for disruption in certain sectors and that brings great investment opportunities,鈥� Bloomer added.

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