That single-year surge, it calculated, was nearly $1tn more than the average of $425bn a year raised over the previous decade. According to Coatue, one of a new band of “crossover” investors that moved from the public markets into the VC world, $1.4tn found its way into promising growth companies globally last year, half of it in the form of venture capital and half through IPOs. The flood of money into the private markets was matched by an equal flood into IPOs. That was twice was much as the previous year, which was itself twice the level of three years earlier. By comparison, the amount of cash pumped into American tech start-ups last year reached $330bn. The scale of the most recent venture boom has dwarfed that at the end of the 1990s, when annual investment peaked at $100bn in the US. And that, in turn, could deliver a shock to a tech start-up world that has grown used to ever-increasing amounts of capital. If those bets sour, it could lead to a retreat by many of the newcomers drawn to venture investing. Hedge funds, private equity firms, sovereign wealth funds, corporate VCs and mutual funds between them supplied two-thirds of all the money that went into venture investing globally last year, according to data provider PitchBook. Much of that investment poured in last year, as the valuations of private start-ups were hitting a peak. Investors of all stripes have crashed the clubby world of VC in recent years in pursuit of companies promising higher growth rates than those available on the public stock market. Venture Capital’s deferred date with reality, when it comes, will be a watershed moment for the start-up world.
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Many more will have to follow Klarna’s lead before the full extent of the reset sinks in © Magnus Hjalmarson Neideman/SvD/TT/Alamy Sebastian Siemiatkowski, CEO and co-founder of Klarna. “Many companies are going to be in denial about the change in valuations until they run out of capital,” adds David Cowan, a partner at Bessemer Venture Partners. Despite some signs that people are getting more realistic about valuations, “We don’t yet have the full puking that’s required,” says Wolfe. Many more will have to follow Klarna’s lead before the full extent of the reset sinks in.
Fast-growing fintech company Block is down 78 per cent, after $130bn was wiped from its market value. Shares in Affirm, a US buy now, pay later company that went public early last year, have also fallen 87 per cent from a peak last November. Yet that savage price cut merely echoed a turn that had already set in for similar companies in the public markets. Klarna, the Swedish buy now, pay later company, sent shockwaves through the market for private fintech companies earlier this month when it had a valuation of $5.9bn, before the addition of new money - 87 per cent less than its venture capital backers judged it was worth a year ago. Only companies with an urgent need for capital have been forced into a full reckoning with reality, as investors putting in new money demand an up-to-date valuation.
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