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Secondary trading in shares of technology companies that haven’t yet gone public with an IPO was pretty much nonexistent from March to July. Now, some traders are beginning to pick over the bones of the market, looking for deals. Julie Steinberg and Ben Dummett report for The Wall Street Journal:
Many startups held on to lofty valuations for months after the technology-heavy Nasdaq Composite began to sell off in November 2021. However, the market’s resilience started to wane this summer, as venture-capital firms and hedge funds began to unload to make up for losses in their public holdings.
People involved in the trades say they are seeing discounts from around 30% to 40% to as much as 80% off valuations from earlier fundraisings. With many companies putting plans to raise new funds or go public on hold due to weak markets, secondary deals have become a key gauge of investor appetite.
Secondaries trading was almost nonexistent from March to July, market participants say. Now, some prospective buyers are tiptoeing back into the market, looking for bargains as they bet the selloff has bottomed. Meantime, regular stock markets have staged a modest comeback, with the Nasdaq Composite ending Monday more than 7% above its mid-October closing low.
“We are seeing more buying come back to the market,” said Idan Miller, head of Unicorns Exchange. The Israeli-based marketplace lets investors trade in closely held tech startups such as Klarna Bank AB, Stripe Inc. and Chinese social-media giant ByteDance Ltd.
Citing the discounts in July, Mr. Miller said a record volume of shares, topping $150 million in total value, traded on his platform in the third quarter. He said that eclipsed the previous record set in the fourth quarter of 2021.
Wealth-management software provider Addepar Inc. is one of the companies that has repriced. One buyer accumulated stock in seven separate trades in September and October at prices that valued the Silicon Valley-based company at valuations of $1.7 billion and $1.8 billion. That is down from trades in December at a $2.5 billion valuation, Mr. Miller said.
Unicorns Exchange isn’t the only venue where shares are being offered at reduced valuations. Mirai Capital, another secondary network, has several sellers looking to unload stakes at discounted prices to previous rounds, trading information viewed by The Wall Street Journal showed.
The markdowns can be striking. Shares in ByteDance, the company behind TikTok, traded privately at a $450 billion valuation last year, Mr. Miller at Unicorns Exchange said. Recent offers imply a valuation of $220 billion to $260 billion, he added.
The comedown was to be expected after years of fundraising at overheated levels, said Itamar Har. Even, co-founder of Ion Pacific, a New York and Hong Kong-based firm that invests in secondaries. Mr. Har-Even said firms with especially inflated valuations above a billion dollars “are the ones that are really getting hit in the secondary market.”
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