After a blockbuster year for venture capital deals, some investors worry the boom times may not last much longer.
Tech start-ups raised a record $621 billion in venture funding globally in 2021, according to CB Insights, up more than double from a year earlier. The number of privately-held “unicorn” firms valued at $1 billion or more rose 69% to 959.
Private companies such as Stripe and Klarna saw their valuations swell to the tens of billions of dollars, aided by a flood of cash as a result of ultra-loose monetary policy and the acceleration of digital adoption during the Covid-19 pandemic.
Now, with the Federal Reserve hinting at plans to hike interest rates in a bid to cool rising prices, investors in high-growth tech firms are getting cold feet. The Nasdaq Composite has fallen over 15% so far this year as fears of tighter policy has led to a rotation out of growth stocks into sectors that would benefit from higher rates, like financials.
In the private markets, panic over the tech sell-off is starting to set in. VC investors say they’re already hearing about deals being renegotiated at lower valuations and even the withdrawal of term sheets. Later-stage companies are likely to be the hardest hit, they say, while some firms’ plans to go public could get put on hold for the foreseeable future.