Crypto Public Startups Venture

Everything’s Down

Morning Markets: A quick look at the recent moves from the public and crypto markets, and what their moves may mean for startups.

It’s rough out there. After a nearly ten-year bull cycle, stocks are showing weakness yet again. Tech stocks were pounded yesterday amidst broader declines. The crypto world endured stinging losses as well, pushing bitcoin closer to $4,000 than $5,000. The token has seen its value fall from over $19,000 in late 2017.

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More losses are expected. The tech-heavy Nasdaq’s futures are off about 1.5 percent, an hour ahead of the market’s open.

Let’s quickly take stock of what took hits, and then gist those results down to how we view the startup market. Consider this post a short thread trying to link the public and private markets. Yes, Crunchbase News is focused a bit closer to the ground, but the weather matters no matter your altitude.

Stocks

Major tech companies and smaller players alike fell yesterday. The Big 5 (Facebook, Amazon, Microsoft, Apple, Alphabet) shed about $150 billion in market cap, falling to $3.51 trillion. That figure crested the $4 trillion mark this year, for reference. Chinese giants fell as well, with Alibaba and Tencent shedding around 3 percent apiece.

Shifting to smaller companies we can see even bigger hits than the nearly 6 percent that Facebook gave up, or the 5 percent that Amazon dropped.

Box slipped by nearly 7 percent, while Salesforce dropped nearly 9 percent. Dropbox lost over 7 percent, leaving it worth about two quarters more than its IPO price. Staying on the SaaS theme, Hubspot lost over 14 percent, while New Relic slid over 9.5 percent. Shopify was off nearly 11.5 percent as well. If it sells recurring software or tooling, it probably lost a lot of worth yesterday.

Chip player Nvidia kept its fall going, sliding 12 percent to $144 and change. Snap was off nearly 7 percent to $6.05 (IPO price: $17). Square fell nearly 11 percent. Twitter? Down 5 percent. The list keeps going.

So What?

We’ve seen broad selloffs like this before in 2018 as the market’s momentum seemingly stalled. If this one will stick isn’t clear.

If the above losses do persist, however, they will represent another repricing of the value of technology indistry revenue, profit, and growth. The same things that startups are also valued on (though with less focus on profitability for obvious reasons). And, as the public market operates as a comp for private companies if the former goes down, the latter also sheds expected value (mostly).

Why? Because public markets helps set exit valuations. Dropbox is worth less today as a public company than it was as a private company. That could dampen enthusiasm among private-market investors (VCs, PE firms, etc) for shares in yet-public firms looking for capital. Result? Smaller valuations.

And if the Nasdaq falls sharply, expect it to dampen private investor sentiment as a rule of thumb.

Crypto

If yesterday was bad for tech stocks, and therefore technology startups, what’s happened in crypto is even worse.

Bitcoin fell from its comfortable range in the mid-$6,000s into the $5,000s at first. Overnight it fell under $5,000. It’s worth less than $4,500 as I type. The broader crypto market has lost about 30 percent of its value in the last week, falling from an aggregate value of around $215 billion to $146 billion.

But sharp declines and sharp recoveries are par for the course in crypto, so why care about this particular jolt? Because bitcoin, instead of bouncing back from its lengthy summer doldrums has broken negative. It’s cratering instead of recovering. And when bitcoin drops sharply, the value of every other token falls as well. So goes bitcoin, so goes the market for bitcoin competitors.

So What?

There’s a huge amount of startup activity that is threatened by the above declines. Some directly, as there are companies built around specific coins that are losing a lot of their liquid worth. There are ICOs sitting on crypto assets that were stored for later use; those reserves are now worth far, far less than they were, potentially harming development budgets. And there are crypto-focused venture groups that have made bets across the sector that aren’t having a good day.

Finally, the crypto-majors like the newly-capitalized Coinbase are impacted. Coinbase charges a spread (50 basis points) on certain crypto transactions, to pick an example. Those incomes could fall with the slipping price of crypto-assets available for sale on the platform. And when Robinhood is pushing zero-fee crypto trading, trading platforms may be under pricing pressure as well.

Today is already off to a bad start with more crypto declines, and the major public indices projecting sharp losses. More from us when things shake out.

Illustration: Li-Anne Dias