Adam Hardej

Mar 31, 2022·Newsletter

Private Market Markdowns

Private Market Markdowns

It continues to be a tough time to be a public tech company as we watch names like Shopify and Zoom trade at big discounts to where they were a year ago. Through this turmoil though, private markets have mostly marched on. Until now(ish).

Instacart slashed its own valuation by almost 40% to $24B in order to attract and retain talent who were not seeing much potential upside in their equity awards before the markdown. This is bad news for our friends at Andreesen and Sequoia who most recently participated at a $39B valuation.

Instacart is leading the charge, but a long list of hot startups are staring down public market comparables that have to make them a bit uneasy. To name a few:

Hopin raised at a $7.7B valuation in August of 2021 on a revenue multiple of 77 while Zoom currently trades on an 8.5... At almost a 10x difference one could argue Hopin should live below $1B. (They also broke the land-speed record to become a unicorn so easy-come easy go, I guess.)

Patreon raised their Series F at a $4B valuation in April 2021. Meanwhile, Shopify stock has tumbled ~39% and is trading on a 19x revenue multiple. This would imply a ~20% haircut for Patreon after a year of solid growth. (Looser comparison here, but the argument is that they offer similar suites of tools to different types of sellers: products vs. content.)

Even FTX has some troubling numbers lurking around them. FTX is coming off a $32B valuation at the height of crypto-fever, while Coinbase is down 20% and trades on a 4.8x estimate of 2022 revenue. If you were to apply that to FTX they would be looking at a valuation closer to $10B. (FTX has better margins than Coinbase and SBF is the crypto-king we all aspire to be, but still.)

All in all, these companies are not at risk of closing up shop without new funding and will likely just look to stay away from new pricing events until markets rebound. However, as seen with Instacart, this can create a worrisome dynamic for new employees. It's one thing for investors to wait it out, but will employees swallow a top of market valuation on their equity package? With hiring markets as competitive as they are it will be interesting to see if we see more startups bite the down-round-bullet to attract the best builders.

Click here to check out the full article from Akash Pasricha at The Information.

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