Tiger, SoftBank Writedowns Signal FinTech Chilling Effect

Valuation of investments and companies is still an exercise in paper gains and losses.

Nothing is final until the investor, VC fund or mutual fund pulls the trigger.

But a spate of recent writedowns of privately held tech firms — startups and even the darlings of FinTech and other sectors — shows that returns on investment are harder to come by.

And that can end up having a negative ripple effect on innovation and disruption (the good kind, not the run-of-the-mill kind) in itself.

For that purpose, as reported this week of The Wall Street Journal, Tiger Global has “marked down” the value of investments in private firms held within its VC funds — a move that removes $23 billion from those portfolios, per unnamed sources.

Among the holdings are TikTok parent company ByteDance and payments behemoth Stripe.

In the case of Stripe, as reported herethe company said this week that it raised $6.5 billion in a funding round that values ​​the payments company at $50 billion — and that $50 billion is a significant drop, we note, from the $95 billion valuation the company raised back in 2021.

The Tigers aren’t alone in their declines: SoftBank Group’s privately held valuations for Vision Fund 2 were down 40% through the second half, according to the Journal report.

Daily weighing vs. Months between funding rounds

The public markets offer a daily weighing of companies. And year-to-date results for the tech-heavy NASDAQ show a roughly 12% gain, indicating that so far in 2023 there is hope for a rebound from a 2022 that saw a 33% drop. Of course, for investors here (and yes, investment management companies like Tiger also have stakes in publicly traded firms) have quarterly earnings reports to help drive decisions and valuations.

But in the private markets, valuations can be set at a staggered pace, stretching over months or even years before new rounds of funding determine the “value” of that company – between those rounds, VCs have to measure those holdings when measuring the quarter’s / year’s performance.

At least some downscaling is in evidence: The Financial Times reported last fall that Tiger Global had raised a private equity fund targeting $6 billion in investments, which would be half the value originally targeted.

For the technology companies and for the VC companies that have been the recipients of these funds, the pressure is on. If Tiger and SoftBank pull back and valuations continue to be marked down, these companies will find it less easy to attract these investments.

Meanwhile, the failures of two mainstays of tech banking (and thus capital)—Signature and Silicon Valley Bank—and the liquidation of a third (Silvergate) mean the near-term road to tech startup funding will be rocky in the blink of an eye. their already tough journey of scaling nascent businesses. SVB Financial noted last week, as it struggled to save itself and ultimately failed, that client firms had burned through their own cash piles, evidence of operational pressure.

There is no help to be found on the public markets at the moment, which can exist as a capital lifeline. As PYMNTS has tracked In recent months, only three of the nearly four dozen FinTech names that have gone public over the past few years (right into the pandemic and beyond) have made positive returns since their public listings. That’s enough to make any company, and its backers, a little intimidated about taking the public route.