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Pre-Release Inventory: The Startup World Must Be Accountable

For years, young companies making big promises have been rushing for money from venture capitalists and other private investors while reporting huge losses. Now the thought is gone, that should change.

This was not the case.

Investors, full of cash during the recovery from the coronavirus pandemic, continued to look for new places to park it. Startups promising rapid growth seemed like a great option. Venture capital-backed U.S. companies raised nearly $330 billion in 2021, roughly double the previous all-time high in 2020.

Nearly three years after the WeWork scandal, however, a real toll could be in sight, as the financial conditions that facilitated the startup boom begin to unravel.

Breakdown: For the first time in years, interest rates are rising, dampening enthusiasm for speculative investing and prompting investors to dump their tech holdings en masse.

Meanwhile, market volatility is making it harder for companies to go public. This will make it harder for venture capitalists and other private investors to exit positions, and could make it harder for late-stage startups to secure funding.

This is already showing up in the data, according to PitchBook, a research firm. While the valuations of mature startups remain high, they fell in the first quarter compared to 2021.

On the radar: Companies always want to raise money by going public. Grocery delivery startup Instacart, one of the world’s most valuable private companies, confidentially filed an initial public offering this week.

But it will not increase as much as 12 months ago. Instacart revised its valuation from its peak of $39 billion to around $24 billion in March, citing recent market turmoil.

Investments in early stage startups are doing better at the moment, as they have plenty of time before they have to weigh IPOs, PitchBook said. But that could change in “a few more quarters” if market conditions remain intact, sending a chill through the entire startup ecosystem.

Masa said it: Nowhere was the change in mood clearer than during SoftBank’s recent earnings call. CEO Masayoshi Son has invested billions of dollars in startups in recent years, making him the biggest tech investor in the world.

But on Thursday, SoftBank said its technology funds lost more than $27 billion in its most recent fiscal year, by far their worst performance on record. In a presentation, Son acknowledged the losses and pledged to take a more conservative approach.

Going forward, the Japanese conglomerate will be more selective about the transactions it accepts, put in place stricter criteria for new investments and focus on improving the returns of its portfolio companies, he said. declared.

Over $7 trillion wiped out of stocks

It’s no secret that the stock market crash was brutal. But how much money have investors really lost this year?

My CNN Business colleague Paul R. La Monica did the math. He calculates that more than $7 trillion in market value has been wiped out of blue-chip S&P 500 stocks.

The index is down almost 18% since the end of December. That puts it barely above bear market levels, which is a 20% drop from a recent closing high.

The Dow is down more than 13% this year. The tech-heavy Nasdaq Composite, meanwhile, has been in a bear market for months. It has plunged 27% so far in 2022.

Bespoke Investment Group said this should sound alarm bells.

According to data from the research firm, the Nasdaq has fallen more than 20% in the past 30 trading days. A drop of this magnitude has only happened 11 times before. Nine of those declines were “associated with recessions”, according to Bespoke.

Nearly $3 trillion of the S&P 500’s decline in market capitalization comes from the technology sector. Shares of technology leaders Apple, Microsoft, Amazon, Alphabet, owner of Google, Meta and Tesla, parent of Facebook, are all deep in the red.

Netflix, down more than 70%, is the worst performer in the S&P 500 this year.

Crypto Market Panic Is Easing (For Now)

The crypto sector suffered a huge shock this week when so-called “stablecoins” – which underpin the digital economy as stores of value – unstuck, an unprecedented moment that fueled a wave of panic sales.

The atmosphere has calmed down a bit in the last 24 hours. Tether, one of the most popular stablecoins, mostly recovered from a sudden drop on Thursday and is now trading just below $1. Because Tether is designed to be exchanged for $1 at all times, this has helped restore trust in the system.

Bitcoin is once again trading above $30,000, up over 9% in the past 24 hours. Coinbase, the largest publicly traded crypto company, rose 16% in premarket trading on Friday after slipping 44% earlier in the week.

But concerns persist about algorithmic stablecoins like TerraUSD, which use financial engineering to maintain their peg to the dollar instead of relying on real reserves. TerraUSD was last trading at 18 cents – a whopping 82 cents below where it should be, based on its promise to investors.

This keeps crypto traders on edge as they grapple with eye-popping losses and reinforces calls for regulators to step in with better oversight.

“The crypto carnage, volatility and destruction of wealth over the past few days and weeks are red flags about the threats posed to client protection and systemic stability by cryptocurrency investments,” said Better Markets CEO Dennis Kelleher in a statement on Thursday.

Following

Honest Company publishes its results before the opening of the American markets.

Also today: The University of Michigan Consumer Sentiment Survey for May releases at 10 a.m. ET.

Coming next week: Earnings from top retailers including Home Depot, Walmart, Lowe’s, Target and Kohl’s.

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