Tiger, SoftBank Writedowns of Private Tech Holdings Signal Chilling Effect for FinTechs

Valuation of investments and companies remains an exercise in paper gains and paper losses.

Nothing’s final until the investor, the VC fund or the mutual fund pulls the trigger.

But a spate of recent markdowns of privately-held tech firms — the startups and even the darlings of FinTech and other sectors — shows that returns on investment are harder to come by.

And that might wind up having a negative ripple effect on innovation and disruption (the good kind, not the run-on-the-bank kind) itself.

To that end, as reported this week by The Wall Street Journal,  Tiger Global has “marked down” the value of investments in private firms housed within its VC funds — a move that wipes off $23 billion from those portfolios, per unnamed sources.

Among the holdings are TikTok parent company ByteDance and payments behemoth Stripe.

In the case of Stripe, as reported here, the company said this week that it raised $6.5 billion in a funding round that values the payments firm at $50 billion — and that $50 billion is a significant markdown, we note, from the $95 billion valuation the company fetched back in 2021.

Tiger’s not alone in its markdowns: SoftBank Group’s privately held valuations for its Vision Fund 2 were 40% lower through the second half of the year, per the Journal report.

Daily Weighing Vs. Months Between Funding Rounds

The public markets offer a day-to-day weighing of companies. And the year-to-date performance of the tech-heavy NASDAQ shows a roughly 12% gain, which indicates that so far in 2023, there’s hope for rebounding fortunes after a 2022 that saw a 33% drop. Of course, for investors here (and yes, investment management companies like Tiger also have holdings in publicly-traded firms) have quarterly earnings reports to help drive their decisions and valuations.

But in the private markets, valuations can be set at a staggered pace, stretching across months or even years before new funding rounds determine the “worth” of that company — in between those rounds, VCs have to yardstick those holdings as they gauge the quarter’s/year’s performance.

There’s at least some scaling back in evidence: The Financial Times reported last Fall that Tiger Global had been raising a private equity fund that targeted $6 billion in investments, which would be half the value that had initially been targeted.

For the tech companies and for the VC firms that have been the beneficiaries of those funds, the squeeze is on. If Tiger and SoftBank pull back and valuations keep getting marked down, these companies will be less readily able to attract those investments.

In the meantime, the failures of two mainstays of tech banking (and thus, capital) — Signature and Silicon Valley Bank — and the liquidation of a third (Silvergate) means that the near-term path to tech startup funding will be rocky indeed amid their already tough journey of scaling nascent businesses. SVB Financial noted last week, as it scrambled to save itself and ultimately couldn’t, that client firms had been burning through their own cash piles, evidence of operational pressures.

There’s no succor to be found in the public markets at the moment, which can exist as a capital lifeline. As PYMNTS has tracked through the past several months, only three of nearly four dozen FinTech names that have gone public through the past few years (right into the pandemic and beyond) have posted positive returns since their public listings. That’s enough to leave any company, and its backers, a bit daunted in taking the public route.