Tech

Venture capital: high early-stage funding points to healthy private market for tech

Funding declines in the technology industry are typically spread across three distinct markets. First, shares in public companies fall. Then the valuations of venture capital deals fall. Eventually, early-stage investments dry up. The first two stages are underway. But early-stage investments fly high.

This is good news for anyone worried about a second impending dot-com bust. According to the financial data provider PitchBook, so-called initial financing, early investments in start-ups, closed at almost a record level in the first quarter of the year. Rising interest rates, inflation, and geopolitical instability haven’t stopped tech investors from looking for the next big thing. A total of 1,100 early-stage deals were closed, down year-on-year but higher than any previous quarter.

It is possible that the trend will not continue. Private markets have lagged public ones, where shares on the tech-heavy Nasdaq have fallen 14 percent year-to-date. High valuations could portend further declines. Shiller’s cyclically-adjusted price-to-earnings multiple was higher only during the dot-com boom.

Broad market activity is sluggish. Tech M&A has fallen back to pre-pandemic levels, more than a third down from the same period last year, according to S&P Global Market Intelligence.

Although over 1,000 companies with valuations of $1 billion have achieved unicorn status, private companies have also delayed listing. The knock-on effect is a reduction in exits made available to investors to support other companies.

But the firepower of investors hasn’t evaporated. PitchBook estimates that venture capital fundraising has raised over $70 billion obligations so far this year. That puts it on track to surpass last year’s total. Silicon Valley venture capital firm Andreessen Horowitz alone announced it had completed a $9 billion campaign in January. It raises billions more to invest in cryptocurrency startups.

This year may not match the excesses of 2021. But the volume of new funds raised points to another big year for venture investing.

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Venture capital: high early-stage funding points to healthy private market for tech Source link Venture capital: high early-stage funding points to healthy private market for tech

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