Tech Newsletter July 2022

Public Markets

The first six months of 2022 saw S&P 500 and Nasdaq move into the bear market territory after falling more than 20 per cent from their recent highs. The meltdown in stocks was understandable after the valuations had peaked on the back of the easy money policy of the US Fed. The stocks started tanking once it was clear that US Fed will start raising interest rates to tame the runaway inflation. Inflation crossed 9% in June and by July end, US Fed raised rates by 225 basis points in the current interest rate cycle.

July 2022 has been the best month for S&P 500 since November 2020, with the leading index jumping ~8.1% amidst the economic uncertainty. The top mega cap stocks S&P 500 were Tesla, Apple, Amazon, and Nvidia, all clocking over 15% in July 2022.

The recessionary fears are still there with the US GDP falling 0.9% on an annualized basis in the Q2 after a 1.6% drop in the first quarter. The only silver lining that showed up was the statement from Fed that the rate hike may not be as aggressive as expected by market participants. Market participants feel the Fed could soon reduce the pace of tightening if the economy continues to slide further down. The other key factor for market recovery is better than expected corporate earnings during the ongoing earnings season.

Historically, August month market performance has been tepid. It is one of only two months where the S&P 500 has averaged a negative return since 2010 (other than May) and is also one of only two months, with greater negative monthly return than positive return.

Private Markets

New private tech funding round details are hitting the news, providing fresh insights on current market conditions. In March, it was Instacart down 38%. In past two months, Swedish fintech company Klarna raised fresh equity funding at a US $6.7 bn valuation, down 85% from the US $46 bn valuation it secured just thirteen months ago. In another case, Stripe cut its valuation by 28% in an internal assessment conducted last month.

Beyond these headline deals, broader private market valuations also took a hit and in Q2 Forge Global (leading secondary marketplace) saw startups shares trading at an average 6% discount to their last fundraising round. This was sharp reversal from the earlier case of premium being offered over last primary round prices.

The selling pressure was also visible in the overall elevated levels of selling interest on the Forge Global platform. The ratio of sell-side IOIs (Indication of Interest) to buy-side IOIs remains roughly consistent with sell-side interest taking up roughly 60% of the mix.

?According to Pitchbook venture backed IPOs are down 52 per cent, while buyout backed IPOs are down by 32 per cent?- this is a steeper fall even than the S&P 500 since the beginning of the year.?

According to Pitchbook venture backed IPOs are down 52%, while buyout backed IPOs are down by 32% - this is a steeper fall even than the S&P 500 since the beginning of the year.

However, given that the private equity dry powder has grown nearly 17% annually since 2015, reaching a new record of US $1.8 Tn globally in January 2022, once the macroeconomic situation improves and public markets stabilize, experts expect the investors to quickly jump back into the private markets.