Start-up workers were expecting another year of public offerings. Inflation ballooned, the stock market tanked, and interest rates went up. Instead of going public, start-ups cut costs and laid off employees.
People began dumping their start-up stock.
The number of people trying to sell their stock doubled in the first three months of the year, according to Phil Haslett, founder of EquityZen. The share prices of some billion-dollar start-ups have fallen in recent months.
He said that it was the first sustained decline in the market in 10 years.
That is a sign of how the start-up world has changed over the last decade. There are warnings of a coming downturn on social media every day. Owning start-up stock is now viewed as a liability, because it was once seen as a sure path to immense wealth.
The turn has been rapid. In the first three months of the year, venture funding in the United States fell 8 percent from a year earlier. At least 55 tech companies have announced layoffs or shut down since the beginning of the year, compared with 25 this time last year, according to Layoffs.fyi. I.P.O.s, the main way start-ups cash out, plummeted 80 percent from a year ago, according to Renaissance Capital.
On Deck, a career-services company, and MainStreet, a financial technology start-up, all laid off at least 20 percent of their employees last week. Halcyon Health, an online health care provider, abruptly shut down in the last month. The grocery delivery company slashed its valuation to $24 billion in March from $40 billion last year.
Growth at any price is not enough anymore, according to a venture capitalist.
Over the past decade, the start-up market has weathered similar moments of fear and panic. The market would come roaring back and set records. According to PitchBook, venture capital funds raised a record $131 billion last year.
The start-up world's frenzied behavior of the last few years is due for a reckoning, as a result of a collision of troubling economic forces. The decade-long run of low interest rates that made it possible for investors to take bigger risks on high-growth start-ups is over. The war in Ukraine is causing ripples in the economy. Inflation is not likely to abate soon. The big tech companies are faltering, with shares of Amazon and Netflix falling below their prepandemic levels.
"Of all the times we said it felt like a bubble, I think this time is a little different."
On social media, investors and founders have issued a steady drumbeat of dramatic warnings, comparing negative sentiment to that of the early 2000s dot-com crash and stressing that a pullback is real.
Bill Gurley, a Silicon Valley venture capital investor who gave up warning start-ups about bad behavior over the last decade, has returned to form.
Some venture capital firms have paused deal making because of the uncertainty. D1 Capital Partners, which invested in 70 start-up deals last year, stopped making new investments for six months this year. Two people with knowledge of the situation, who were not authorized to speak on the record, said that the firm said any deals that were announced before the moratorium had been struck.
The value of holdings has been lowered by other venture firms. The valuations of seven start-ups that Better Tomorrow invested in have been reduced, the most it has ever done in a quarter. The shift was stark compared to a few months ago, when investors were begging founders to spend more money and grow faster.
The scale of change had yet to sink in with some entrepreneurs.
whiplash is experienced by entrepreneurs. Knock, a home-buying start-up in Austin, Texas, expanded its operations from 14 cities to 75 in 2021. The company was going to go public via a special purpose acquisition company. Knock canceled its plans and entertained an offer to sell itself to a larger company after the stock market fell.
The deal was killed in December because of the stock price drop. Knock raised $70 million from its existing investors in March, laid off half of its 250 employees, and added $150 million of debt in a deal that valued it at just over $1 billion.
Sean Black, the founder and chief executive of Knock, said that the business continued to grow throughout the roller-coaster year. Many of the investors he pitched to didn't care.
It's frustrating as a company to know you're crushing it, but they're just reacting to whatever the ticker says.
Mr. Black said his experience was not unique.
The head of talent at the venture capital firm Pear VC said companies would have to carefully manage worker expectations around the value of their start-up stock. He predicted a rude awakening for some.
He said that if you are 35 or under in tech, you have never seen a down market.
Start-ups that went public during the highs of the last two years are getting hammered in the stock market. Since its debut a year ago, the shares in the exchange have fallen 81 percent. The stock trading app that had rapid growth during the epidemic is now trading at a much lower price. The company laid off 9 percent of its staff last month.
SPACs, which were a trendy way for young companies to go public in recent years, have performed poorly and some are going private again. In 2020, the online health care start-up was valued at $720 million after going public. Patient Square Capital bought it for $225 million, a 70 percent discount.
Others are at risk of running out of cash. Canoo, an electric vehicle company that went public in late 2020, said on Tuesday that it had doubts about its ability to stay in business.
Blend Labs was worth $3 billion in the private market. Its value has plummeted since it went public. It said last month that it would cut 200 workers.
Tim Mayopoulos, Blend's president, blamed the nature of the mortgage business and the steep drop in refinancings that accompany rising interest rates.
He said that they are looking at all of their expenses.
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