Every year or two a privately owned startup is revalued, usually after the funds have been raised. This is unlike publicly traded companies whose valuation is updated daily while trading in real time every session. Even during times when startups are struggling to raise funds or when an economic crisis suddenly sets in, the valuation of a privately held company does not change. So a company that became a unicorn (companies with a valuation over $1 billion) last year or in 2021 is still seen as such from the outside, simply because they chose not to raise money and get a new valuation, which would generally be lower than the previous.
However, beneath the surface is a thriving secondary market that reveals the value of shares in these companies and offers a glimpse into their status. A secondary market involves the sale of shares in a privately owned startup stock by employees, entrepreneurs, or investors rather than by the company itself, usually with the goal of obtaining more liquid funds or simply because they have received an attractive offer.
A series of recent stock sales in startups and private tech companies seen by Globes reveal the depth of the technology crisis and changes in the share prices of several high-profile unicorn companies, including the Israeli ones.
share price drop by 70%
In many secondary deals, startup stocks trade with large differences between the share price at its market value—that is, at the time of the fundraising round—and the price at the time of the transaction. In other cases, even when the deal has not yet been concluded, sellers ask lower prices.
For example, Unicorn Gong, an Israeli software startup that developed an AI-based platform that helps companies analyze sales conversations with customers, had a share price of $33.56 after it completed its latest funding round in June 2021. It is offered on the secondary market. For just $9, more than 70% off its price in 2021. However, it must be emphasized that no deal has been concluded in this matter and any deal requires approval from the company.
The share price of the cybersecurity company Snyk, which helps programmers protect their software code, was $12.62 after the last funding round was completed in December 2022. On the secondary market its shares are being offered for $7.
Israeli tech company Rapyd, a digital payment platform that competes with Stripe and PayPal, raised money in its latest funding round at $73.41 a share, according to PitchBook — but its shares are currently offered on the secondary market for $48 a share. Just last month, Eric Schellman, CEO of Rapyd, said, “Most of the investors in the company maintained our valuation but there are two that cut the valuation by 12% but we weren’t bothered by that.”
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But the story is not the same in every company. At HoneyBook, which provides a platform for managing small businesses, the price of common share held by entrepreneurs and employees rose from $5.40 in January 2022 to $7.35 in December 2022, in the most recent secondary transaction completed. However, it is not from the most recent funding round, which completed in November 2021 when the share price was $9.67, according to PitchBook.
Globes also found that Orca Security’s share price fell by 41%, Navan’s share price fell by 36%, Yotpo’s share price fell by 35%, and Place AI’s share price fell by 18%.
When cash is needed, the share price falls
“The trend in Israel is similar to the global trend, where you can also see big discounts ranging from 25% to 75%,” Amplefields Investments co-founder and fund manager told the Globes network. But while the global industry is recovering, the domestic market is in a more worrying situation, according to a report by the Israel Innovation Authority published last week. Among other things, there has been a decrease in the scope of capital increase, number of employees and dependence on foreign investors.
In this situation, and because of the inflated value that many technology companies received in 2021, “the discounts in Israel are even greater than those abroad,” says Al-Shamsi. “Many companies here knew how to take advantage of the boom in 2021 and the valuation they received was high compared to other countries. In fact, the secondary market is producing a correction for the valuation of companies that have been attached to it in 2021, and in my estimation only half of the unicorns created In Israel it still holds such value today.”
Al Shamsi, who deals himself in buying and selling stocks from companies, explains the reasons that push sellers to his door these days: “People want liquidity, they have taken on certain financial obligations and they need money now. In times of crisis and uncertainty, when it is not possible to know Whether the company in which they own shares will be sold in six months or three years, many prefer to have some financial certainty.”
According to Al Shamsi, the current economic situation affects the secondary market. “Today there is a desire for more specific information about the company,” he says. “Companies have to decide whether or not to go to another fundraising round. When more and more people need cash, as is happening now, the share price drops.” Al Shamsi adds that many startups are not interested in waiting for the exit and want to make money here and now, so they are quick to conclude secondary deals even at a low price.
“I think the right valuation criteria are starting to emerge. In 2021, the name of the game is how much each company can raise and how much time they can move from one funding round to the next. Today, I think we need to acknowledge the sin in our industry.” .
“Continuing to focus on strong sales growth”
Gong said in response, “Gong has not raised any money since the Series E funding round in June 2021. It has since not submitted secondary plans to employees on its behalf, which would have determined a new market valuation for Gong. We are focused on sales growth, through Leveraging our platform, through which we are gaining a larger share, in a large and growing target market and from satisfied users, and this while maintaining high operational efficiency.”
Sources close to Orca Security said: “You have to compare the stake offered in a secondary deal that appears in the article at $7, to the common share price from the last fundraising round – which was priced in October 2021. Valued at $9.8. The numbers that appear are based on a transaction One that was done independently by one employee and does not affect the company’s valuation.”
Rapyd, Yotpo, Snyk, PlacerAI and Navan declined to comment.
Published by Globes, Israel business news – en.globes.co.il – on July 6, 2023.
© Copyright Globes Publisher Itonut (1983) Ltd., 2023.
