Investor Caution Puts Brakes on Startup Funding, IPOs

A rout in the stock market is causing troubles for private equity as valuations fall, The Wall Street Journal wrote Monday (July 4) — and many companies are delaying their plans to go public.

The valuations aren’t down all the way across the board, though venture capitalists say the situation is worse for a lot of companies. Investors are becoming more selective.

Asheem Chandna, partner with Greylock Partners, said inflation, along with the potential for a recession, “have spilled over to the venture-capital industry, and multiples on mid- and late-stage valuations are rapidly compressing.”

Chandna said business plans are drawing more scrutiny now and investors have been looking for more evidence of financial health.

This all comes as dealmaking slows down in the U.S. overall, with venture capital funds investing around $47.5 billion in 2,251 deals during the second quarter through June 15. That’s compared to $70 billion in 3,369 deals in the first quarter, per data from CB Insights.

And some venture capitalists have been telling companies in their portfolios to shore up their balance sheets, focusing more on sustained growth in order to be ready for whatever rocky economic waters are ahead.

This also comes with some venture capitalists rethinking strategies, with the lagging valuations making some of them put more money into earlier-stage companies to help diversify portfolio risk.

See also: Calling Web3 Corrupted by VCs, Twitter Founder Jack Dorsey Pitches Web5

Jack Dorsey, CEO of Block and founder of Twitter, has been skeptical of the plans for Web3 thus far — so he wants to put his energy into something better, which he calls Web5.

He thinks the current version of the blockchain-based internet is unlikely to work, calling it “something of a fraud.”

Instead, he thinks Web3 is doomed not to escape the venture capitalists that have funded its development, calling it “ultimately a centralized entity with a different label.”