糖心视频

Volatility in the public stock markets is setting the private markets up for uncertainty this year. The ongoing turmoil on Wall Street could affect not only the IPO pipeline, but the valuations of late-stage startups that have no other choice than to raise money from private investors.

While private investors will still put money into late-stage companies, they will likely be more disciplined about valuations, according to investors and public market watchers who spoke with Crunchbase News.听

鈥淚n general, the public market and the volatile nature of that does not create a good environment for the private markets in terms of valuation,鈥� said , managing director of the seed-stage fund . While her fund focuses on early-stage startups, several of its portfolio companies are at the stage where they鈥檙e positioned for an acquisition.

IPO and valuation impacts

The year hasn鈥檛 been off to a great start for the public markets. While stocks briefly showed signs of recovery earlier this week, they fell again Thursday after Facebook parent company shed $250 billion in market value in a single day following a . A day earlier, fintech giant saw $50 billion of its market value wiped out after delivering disappointing guidance.听

Concerns about inflation and the Federal Reserve potentially raising interest rates have also contributed to volatility in the market.

Well-established startups鈥攖hink companies like 鈥攚ill likely stay private in these conditions because they can get additional funding to wait out the downturn, though that funding may come at 鈥渕ore reasonable valuations,鈥� according to , founder of .听

• Pro list: The 听

While established companies could go public in this market environment, investment bankers would likely advise against it, given the volatility and selloff that鈥檚 occurring, according to Healey.

鈥�(Those types of companies) will have no trouble getting private equity money,鈥� he said, though 鈥渕aybe not at the same valuation that the public markets were assigning the last couple of years.鈥�

Private equity investors tend to be more disciplined than public investors, Healey said, and now they don鈥檛 have the competition of a robust public market.

鈥淲hen you remove one of the components of the demand, the private equity investors may be more inclined to be more disciplined,鈥� Healey said. 鈥淎 lot of them like to invest at late-stage.鈥�

Late-stage companies are affected more by the activity of the public markets because they鈥檙e closer to reaching that stage. Additionally, many of the biggest declines in the public markets have been in the areas most relevant to late-stage ventures鈥搕hink high-growth, high trading multiple tech businesses, said , managing partner of .听

Rao noted that her firm is still going full-speed ahead with investing because early-stage companies and companies that aren鈥檛 looking to raise money or be acquired are doing well and scooping up talent looking to join a startup.听

M&A could be affected

In addition to lower valuations, companies that hope to be acquired may face other challenges, Rao said. Corporate venture capital arms and corporations are less likely to want to make acquisitions when the market is down. When their stock is up, they鈥檒l look at a slew of companies, but when shares are down they tend to be more selective.

鈥淣ow companies have to be stellar and potentially have lower valuations because the buy side has more power,鈥� Rao said.听

Despite the turbulence in the public markets, it鈥檚 probably healthy for the market now to correct itself now, as opposed to a bigger crash later down the line.

鈥淎t current levels, I think what鈥檚 going on in the public markets is healthy,鈥� Flager said. 鈥淵ou saw this huge run up in the public and private markets in the last 18 to 20 months. It kind of reached a spot where it was quasi-unsustainable鈥�I think what鈥檚 gone on is more of an incremental adjustment, letting the air a bit out of the balloon without it bursting.鈥�

Illustration: