Poor presentation of 2021 IPOs puts a damper on venture capital

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The lackluster performance of IPOs last year dampened the venture capital market.

Some investors are cutting funding and pushing for lower valuations, and IPOs will likely be less frequent in the future, venture capitalists told The Wall Street Journal.

Companies that made initial public offerings, direct stock listings and special purpose acquisition companies, or SPACs, in 2021 saw their shares fall 32.6% on average through Jan. 28, according to Jay Ritter, professor of finance at the University of Florida, The Journal reports.

And it was worse for companies that don’t have a lot of sales. Those with less than $10 million in revenue when they went public fell 40.8% over the period, Ritter said. The decline was more modest at 28.4% for companies with revenue over $10 million, he said.

The slowdown in venture capital could be a good thing for a market that some thought looked like a bubble at the end of last year.

Fred Wilson, a partner at major venture capitalist Union Square Ventures, noted in a November blog entry that $100 million investment rounds have become commonplace for companies that don’t yet have a business model. sustainable.

“I think they [investors] are delusional, comforted by the likelihood that someone will come and pay a higher price in the next round,” he said. “But it seems that this person can also be delusional. Because when you’re modeling things, the numbers just don’t add up.

According to data from StockAnalysis.com, there were 1,058 U.S. IPOs in 2021. That was 120% more than 2020’s record 480 IPOs.

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