FinTech Startups Endure ‘Down Rounds’ as VC Money Dries Up

Startup, Investors, Valuations, Tech Stock, IPOs

A recent souring of the global equity markets is having dire effects for startups that were previously doing well, Reuters reported Tuesday (Aug. 9).

The market troubles and a lackluster demand for new listings have left many young companies raising funds at big discounts to their sky-high valuations.

Reuters wrote that there are 81 U.S. companies overall that have had to take cuts to their valuations during funding rounds, a “down round” in the words of venture capital firms.

Several of the companies affected were already high-profile ones, like payments firm Stripe, buy now, pay later firm Klarna and delivery giant Instacart, which have all seen their valuations take a hit from highs of the last few years.

There’s less easy money from venture capital dealmaking, with high interest rates and inflation causing private investors to be more discerning. Many startups could be years away from profitability, so the money isn’t going to them as freely now.

And while the IPO market was on a high in recent years, it’s been lagging lately — only eight companies had a successful floatation this year, a 13-year low, according to data from Pitchbook and the National Venture Capital Association.

PYMNTS wrote about the phenomenon in February, writing that the market volatility even at that time had started to roil Wall Street’s appetite for IPOs.

Read more: Wall Street Jitters Over Market Volatility Put IPOs on Ice

The industry pundits were saying at the time that it would be “months” before freefalling valuations came back, and analysts said everything was “on hold.”

While 13 companies got $2.1 billion in IPOs in the U.S. as of the report, there was $20 billion from startups at the same time the previous year. One success was TPG, a private equity firm, which got around $250 million.

Meanwhile, SPACs got more than $6 billion at the time of the report, compared to $26 billion from the same time last year.