How investors can still get strong returns from late-stage tech startups

Last year was a record 12 months for the tech industry, with immense amounts of money flowing into both early- and late-stage companies as well as an all-time-high number of IPOs. But it feels like 2022 has been exactly the opposite.

This year has proven that there is always risk in any investment, whether it’s a public stock or a private startup. While the last couple of years may have allowed many people to put on their blinders about those risks, ups and downs are natural and should be expected.

Still, there are ways to mitigate risk when investing in late-stage companies. For investors, now is a good time to start seeing the opportunities while also protecting themselves against potential risks down the line.

What’s affecting late-stage startup valuations in tech?

Tech companies — private and public — have seen strong corrections to their valuations. Some companies that went public in the last year or two have lost more than 75% of their value.

Here’s how things have changed for companies of all stripes:

Image Credits: Secfi

As even high-growth companies see their values being halved or worse, it’s no surprise that private investors and venture capitalists have slowed down their capital deployments, especially to late-stage companies.

Many of these companies were forced to delay their IPOs until the markets calmed down and had to start conserving cash and extending their runways for longer than they anticipated. Some have already lowered their valuations, either in response to these market corrections ahead of a future IPO or to attract investors.

Many tech startups can still outrun the down market

The current market is impacting high-growth companies that consistently lose money the hardest. But it’s also rewarding those that are prioritizing profitability, which is why many companies are reducing spending and costs.