$675 billion was invested in startups and scale-ups worldwide in 2021, and unicorn founders were given national hero status. The investor market became the founder market: Business angels and VCs often reported that they had pitch decks up their sleeves in order to position themselves in the best possible way in front of founders. An oversupply of money hit up-and-coming digital companies in 2021, of which investors were dying to have a piece.
“There has never been a better time to be a startup founder in Europe!” was heard everywhere. “Fortunes Are Made During Times Of Crisis” was the motto of many. Corona crisis? Ok, now my time has come, many thought. This resulted in about 100 new unicorns in Europe – with the help of enormous investments from the USA. Now there is the big question of whether things can continue like this in 2022.
Investors are working on the valuations
The first month of the new year has a sobering answer ready: Not anymore. The rise in inflation in 2021 is now forcing the US Federal Reserve to pull the brakes and raise the key interest rate from March. Money will become more expensive again and the prospect of a rate hike has hit tech stocks and crypto-assets hard. Prices have been strong in the past few days, investors are now much less interested in risky assets.
Data analyses on a price correction in the valuations of high-growth companies – for example in the fintech sector – have been circulating in investor circles for several weeks. What was already spreading behind the scenes is now reaching the public. The Information is now reporting that Tiger Global Management, one of the biggest backers of private tech startups in the last two years, has scaled back its offers for stakes in private software startups – they are unwilling to pay prices like in 2021. In some cases, the lower ratings are said to have been given to founders after the investment documents had already been signed.
Tiger Global has been at the forefront of aggressive growth investors, alongside Softbank, Insight Partners, Coatue, Tencent, and a few others, showering scale-up founders with cash. They have also invested in Austria, namely in GoStudent, Adverity, and PSPDFKit. In addition to Tiger Global, Alkeon Capital from New York (including Veriff, FireBolt, Apprentice, Qonto, Pleo), also a unicorn maker in Europe, is said to have lowered the ratings of scale-ups.
Unicorns: Softbank wants “valuation discipline”
Finally, Rajeev Misra, CEO of the Softbank Vision Fund , spoke up. “‘Our company is worth $20 billion, send us a term sheet and we decide whose money we take’ – that’s over,” Misra said at the Axios Pro Rata event recently. “A start-up market in which founders can choose investors as they wish and dictate which valuations they can enter – that time is over“, says the Vision Fund boss.
The market for private companies (and these are unicorns as opposed to publicly traded companies) is “overvalued” and needs to “rebalance itself”, Misra continued. Private companies in the software sector would be valued today with revenue multiples of 20x and more, but those on the stock market were only listed at 12x. At Softbank, more valuation discipline will be applied in 2022, Misra announced.
The valuation dilemma in the inflation crisis also affects Softbank itself. After it became known that the sale of Arm to Nvidia would probably fall flat, the price of the Japanese investment giant itself fell. Overall, Softbank lost a third of its market value in the past few months. There is also a first shocker from France: SigFox, an IoT scale-up equipped with $300 million, is bankrupt – the remains of the company are now supposed to find new owners.