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Is Wall Street losing its technological enthusiasm? – TechCrunch

 


This is The TechCrunch Exchange, a newsletter that comes out on Saturdays, based on the column of the same name. You can sign up for the email here.

In recent months, the IPO market has made it clear that some public investors are willing to pay more for growth-oriented tech stocks than private investors. We saw it in both strong technology IPO pricing – the value attributed to companies when they started out – and resulting day one assessments, which were often higher.

One way to determine how much public valuations have increased for tech startups, especially those with a software kernel in 2020, is to ask yourself how often you’ve heard of a falling IPO this year. . Maybe just once? At most? (You can catch up with the performance of the IPO in 2020 here, If you need.)

The enthusiasm for the IPO revealed a discrepancy between what many venture capitalists and private investors were paying for tech stocks and what the public market was doing with its own valuation calculations. Insurtech startup Hippo’s $ 150 Million Private Tour from July is a good example. The company was valued at $ 1.5 billion in the cycle, a big jump from its previous private valuation. But if we like it as the then newly public lemonade, a related company, at the time Hippo was affordable.

This week, however, with the concept of private investors being more conservative than public investors in some cases (a few private eight-digit rounds took place this year at even more bullish valuations than the treatment of IPOs by public investors, to be clear) took a ding like most big tech companies lost ground, SaaS stocks sold off, and other tech companies struggled to keep up with investor enthusiasm.

do not only tech companies have taken a beating, but as of this Friday afternoon, the US stock markets were on their way to their worst week since March, CNBC reported, led by the main technological stocks.

A change of wind? Perhaps.

Of note, it wasn’t until September that VCs seemed resigned to seeing startup valuations pulled up by the endless optimism of public procurement for related companies. Canaans Maha Ibrahim told me during Disrupt 2020 that this was a time when VCs had to play along and pay for startups, as long as companies were rewarded in public markets for strong growth, like Snowflake was back then. A16zs David Ulevitch agreed.

Maybe this dynamic is changing as stocks decrease. If so, startup valuations could drop drastically, as could the more exotic areas of startup finance. The SPAC arrow, for example, may decrease. Speaking with Hippos CEO Assaf Wand this week, he postulated that PSPCs were a market response to the public-private valuation gap, an accelerator-bridge to help startups go public as the demand was strong for their own funds.

Without the same searing demand for growth and risk, PSPCs could cool down. The same goes for private reviews that the hottest startups have taken for granted. It is not known if what felt in the wind this week is a hiccup or a tipping point. But the public market fever for tech stocks may have broken down at a somewhat difficult time for Airbnb, Coinbase, By Dash and other IPOs not quite yet.

Market Notes

It has started to snow this week I live in, putting a little sad hat on an otherwise hectic week. Again! There is a lot of our world to enter. Here are our weekly market notes:

  • Remember when we dug into how quickly startups grew in Q3? Another company I’ve covered before, Drift, wrote. The Boston-based marketing software company reported to The Exchange that it grew more than 50% in the third quarter from the previous year’s quarter, with its CEO adding that June and third were the month periods. and three strongest months in its history.
  • The fintech boom continued with DriveWealth Raises Nearly $ 57 Million This Week, boot being another API driven game. It comes as no surprise that a business that falls between two key startup trends of the year is doing well. DriveWealth helps other fintech companies provide users with access to the US stock markets. Alpaca, who recently raised, works in the same direction.

This week featured two IPOs that were close to our hearts. MediaAlphas debuts, giving the advertising and insurtech company an IPO price of $ 19 per share, quickly exploded. Today, the company is worth nearly $ 38 per share. Why? During its IPO, MediaAlpha CEO Steve Yi said he chose the moment because public markets have gained an appreciation for insurtech. The growth in its share price seems to match.

Until we look at Root, to an extent. Root, a neo-insurance provider focused on the automotive space, priced at $ 27 when it debuts this week, $ 2 above the top of the range. The company is now worth less than $ 24 a share. So, whatever wave MediaAlpha captured, it seems to have missed Root.

Honestly, I don’t know what to make the difference between the two debuts, but please send an email if you know (you can just reply to this email, and I’ll get your rating).

Anyway, I spoke with Root CEO Alex Timm after his company went public. The executive said Root had planned to go public a year ago and couldn’t control the noise of the market when it debuted. Timm pointed out that the amount of capital Root added to his coffers – north of $ 1 billion – was a victory. I asked how the company intended not to screw up its newly inflated accounts, to which Timm said his business was going to stay focused on its primary auto insurance opportunity.

Oh, and Root is based in Ohio. I asked what his early days might mean for Midwestern startups. Timm was positive, saying the IPO could highlight that there are a lot of smart people and GDP in the middle of the country, even though venture capital for the region remains underdeveloped.

  • I know you are now tired of the profits, but Five9 did something that other companies have struggled to accomplish, namely, exceeded expectations and strengthened its forecasts. Its stocks have skyrocketed. The exchange called the call center software company to discuss its last acquisition and income. How did he crush expectations like he did? By selling a product that its market needed when COVID-19 hit, accelerating digital transformation more widely and increasing e-commerce spending, resulting in more customer support work on phone lines, has he declared. Lots of things at once, in other words.
  • Five9 took on a bunch of convertible debt earlier this year, despite adjusted earnings. I asked its CEO Rowan Trollope how he was going to invest the money to take advantage of favorable market winds, without overspending. He said the company reviews revenue performance on a very regular basis, helping it adapt new spending in an agile manner. It apparently works.
  • What else? Take a look this week for some big rounds by SimilarWeb, PrimaryBid and Eight times, a company that I have known for some time. Oh, and I covered Wanderlust Series B groups and Teampays Serie A Extension, which were a lot of fun.

Miscellaneous and Miscellaneous

  • What is happening in the world of venture capital debt as venture capital gets back into shape? We dug.
  • For the Europhiles among us, here’s what’s new with recipes from the VC continents.
  • Here is 10 favorites from the last Techstars demo days.
  • And here a little mathmagic on Databricks, after the rumor of an IPO target for the first half of 2021.
  • I was away from space this week, but I have some fun stuff in the tank for later including an investor from Capital G for RPA, a call with the CEO of Zapier about growth without code / low-code and notes from a developer ecosystem discussion with Dell Capital. More information on all of this when the news subsides.

Stay safe and vote.

Alex



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