When it comes to IPO valuations of innovative companies, the public markets are not buying what late-stage venture capitalists and investment bankers are selling. Roughly a third of companies that have gone public through IPOs in the past four years are trading below their previous private valuations in March 2022, dismissing late-stage and IPO ratings from venture capitalists and investment bankers.”
Citing WeWork as an example, investment bankers valued the startup at $104 billion prior to its failed IPO in late 2019, more than double the $46 billion of its private funding round in January 2019. In 2021, WeWork went through a SPAC at a market valuation of $9 billion. According to Bloomberg, that valuation was halved to $4.5 billion as of March 17.
As late-stage venture capitalists protect themselves from stock losses with liquidation preferences, employees have come to understand “that they will bear the brunt of downside moves in private markets and lower stock prices in public stock markets,” Friedrich writes.
Since the WeWork debacle, ARK has found that over the past year, the contrast between sky-high valuations of public companies early in the innovation space and severe valuation compression has impacted private companies’ ability to attract and retain talent. Last week, Jason Warner, managing director of venture capital firm Redpoint Ventures, tweeted that a “very good recruiter friend” of his at a top recruiting firm “can’t place executives or engineers at multi-billion dollar valuation firms with separate ARR for valuation.” Warner added, “This has been a long time coming, but now it’s getting harder to recruit for fundamental mismatches.” Altimeter Capital’s partner Pauline Yang wrote on Twitter, “Senior employees are asking what their equity is in the face of the sky-high reviews means” and “candidates reject job offers from great companies because they see less potential.”
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