2021 was an extraordinary year by any standard. It was clear to everyone that the boom in capital markets in general, and technology stocks in particular, had disconnected corporate values from reality, and that it wouldn’t last forever. Interest rates began to rise, the market shifted from looking for growth companies to profitable ones, and the value of publicly traded companies that completed his IPO at a high price fell. A decline in corporate value will obviously affect employee equity values, but overall it’s back to reality.
To confirm this claim, S-Cube, a subsidiary of IBI Capital that specializes in valuing tech companies, looks at how a “slowdown” actually slows companies down and affects funding rounds. We conducted a survey.
Red screens made investors selectively choose mature companies
The study, which looked at capital raised by Israeli tech companies and companies associated with Israel in the first half of 2022, has surprised even the optimists among us. While the sharp decline in technology stocks in the first half of the year has dampened investor risk appetite, the value of highly funded private technology companies has continued to rise.
The Nasdaq index has lost about 30% of its value and investors have cut back on early funding rounds for small businesses. However, investors continued to invest in tech companies with advanced funding (D+ rounds), and their value increased. Investors lowered their risk levels in the first half of 2022, selectively choosing mature companies and preferring to invest in companies with advanced funding stages.
As with past crises in 2008 and 2018, mature companies will no doubt return to IPOs once the crisis passes. Research supports this conclusion as it shows that the value of these privately held companies continues to rise. Here’s a response to anyone asking the impact of the market slowdown and whether now is the right time to do her IPO.
Prepare for market downturns.Execute when the market turns around
Remember, getting a company ready to IPO is a process and if your company isn’t ready, you can’t seize the opportunity in the capital markets and do an IPO. Within the framework of the process, the company must be organized from the accounting and legal aspects. Additionally, corporate governance standards must meet the high standards of public companies while ensuring that the company understands and embraces change. It is also important that the company’s service providers are well prepared and suitable for providing services to public companies. For example, corporate incentive plans are managed differently for public and private companies. As such, IBI Capital, which specializes in public company operations associated with IPOs, is the right vendor for such issues.
Raising company standards to public company standards is important and should be done in times of crisis so that the company is prepared when the crisis has passed. The current period therefore offers an excellent opportunity for these companies to optimally prepare and further strengthen for the end of the crisis.
Looking ahead, the technological revolution that began before the pandemic and continues today is not expected to be stopped by a market slowdown or recession. On the contrary, technology is he one of the driving forces of the global economy coming out of recession. Therefore, we believe the value of highly funded companies with proven business models will continue to increase in the second half of 2022. These companies need to plan ahead and move on to the necessary next step, his IPO.
The foregoing information is intended for informational and general purposes only and should not be construed as comprehensive and/or exhaustive in all respects.
The foregoing does not constitute legal, financial, tax or economic advice, nor is it a substitute for professional and personal advice.
Tzvika Bernstein is a Managing Partner at IBI Capital.