START-UP FUNDS DRY UP

Funds invested in tech start-ups sank by 23 percent to $62.3 billion in April, May, and June this year, the smallest amount for the same period since 2019, data service Pitchbook reported.

Tech start-ups usually repay their investors by going public or selling themselves. However, those transactions plummeted 88 percent to $49 billion during the first six months of this year, compared to 2021.

At the same time, the number of deals grew 4 percent to 4,457 during the period. However, the investments were smaller.

In the past, fledgling tech firms were able to thrive because low interest rates helped to fuel a galloping economy and a sure-fire stock market.

However, tech businesses are especially sensitive to interest rates, because the companies typically grow by borrowing and more expensive loans crimp future cash flows.

The skyrocketing valuations that fetched outsize investments in recent years have become “unsustainable,” Pitchbook analyst Kyle Stanford said to The Wall Street Journal.

The start-up market is “pretty much frozen,” investor Mark Goldberg at Index Ventures told the WSJ: entrepreneurs are unwilling to value their companies lower than previously and investors are unwilling to pay what now seem to be inflated prices.

Also, many companies raised a bounty of cash last year and have no need of more yet.

When those companies run short of money next year, “the logjam will break at some point,” Goldberg predicted.

Investors Lightspeed Venture Partners and Sequoia Capital are telling the companies they have backed to cut costs, hoard cash, and hunker down for hard times, according to the WSJ.

“Pretty much every venture capitalist is sounding alarm bells, but the management teams we’re talking to all seem to think ‘we’ll be fine, no worries’,” David Spreng at Runway Capital Growth said to the WSJ.

TRENDPOST: A dearth of venture capital makes better pickings for the tech world’s Bigs.

Many innovations and start-ups that draw attention but not funding can be had for bargain prices by large companies seeking to swallow competitors or grow by acquisition instead of innovation.