‘We will see spectacular failures’: CEOs and investors on what the end of cheap money means for tech
Guillaume Pousaz, CEO and founder of payment platform Checkout.com, speaking onstage at the 2022 Web Summit tech conference.
Horacio Villalobos | Getty Images
LISBON, Portugal — Once high-flying tech unicorns are now having their wings clipped as the era of easy money comes to an end.
That was the message from the Web Summit tech conference in Lisbon, Portugal, earlier this month. Startup founders and investors took to the stage to warn fellow entrepreneurs that it was time to rein in costs and focus on fundamentals.
“What’s for sure is that the landscape of fundraising has changed,” Guillaume Pousaz, CEO of London-based payments software company Checkout.com, said in a panel moderated by CNBC.
Last year, a small team could share a PDF deck with investors and receive $6 million in seed funding “instantly, ” according to Pousaz — a clear sign of excess in venture dealmaking.
Checkout.com itself saw its valuation zoom nearly threefold to $40 billion in January after a new equity round. The firm generated revenue of $252.7 million and a pre-tax loss of $38.3 million in 2020, according to a company filing.
Asked what his company’s valuation would be today, Pousaz said: “Valuation is something for investors who care about entry point and exit point.”
“The multiples last year are not the same multiples than this year,” he added. “We can look at the public markets, the valuations are mostly half what they were last year.”
“But I would almost tell you that I don’t care at all because I care about where my revenue is going and that’s what matters,” he added.
Rising cost of capital
Private tech company valuations are under immense pressure amid rising interest rates, high inflation and the prospect of a global economic downturn. The Fed and other central banks are raising rates and reversing pandemic-era monetary easing to stave off soaring inflation.
That’s led to a sharp pullback in high-growth tech stocks which has, in turn, impacted privately-held startups, which are raising money at reduced valuations in so-called “down rounds.” The likes of Stripe and Klarna have seen their valuations drop 28% and 85%, respectively, this year.
“What we’ve seen in the last few years was a cost of money that was 0,” Pousaz said. “That’s through history very rare. Now we have a cost of money that is high and going to keep going higher.”
Higher rates spell challenges for much of the market, but they represent a notable setback for tech firms that are losing money. Investors value companies based on the present value of future cash flow, and higher rates reduce the amount of that expected cash flow.
Pousaz said investors are yet to find a “floor” for determining how much the cost of capital will rise.
“I don’t think anyone knows where the floor is on the upper hand,” he said. “We need to reach the floor on the upper hand to then decide and start predicting what is the lower end, which is the long term residual cost of capital.”
“Most investors do valuations still to this day on DCF, discounted cash flow, and to do that you need to know what is the residual floor on the downside. Is it 2%, is it 4%? I wish I knew. I don’t.”
‘An entire industry got ahead of its skis’
A common topic of conversation at Web Summit was the relentless wave of layoffs hitting major tech companies. Payments firm Stripe laid off 14% of its employees, or about 1,100 people. A week later, Facebook owner Meta slashed 11,000 jobs. And Amazon is reportedly set to let go 10,000 workers this week.
“I think every investor is trying to push this to their portfolio companies,” Tamas Kadar, CEO of fraud prevention startup Seon, told CNBC. “What they usually say is, if a company is not really growing, it’s stagnating, then try to optimize profitability, increase gross margin ratios and just try to just lengthen the runway.”
Venture deal activity has been declining, according to Kadar. VCs have “hired so many people,” he said, but many of them are “out there just talking and not really investing as much as they did before.”
Not all companies will make it through the looming economic crisis — some will fail, according to Par-Jorgen Parson, partner at VC firm Northzone. “We will see spectacular failures” of some highly valued unicorn companies in the months ahead, he told CNBC.
The years 2020 and 2021 saw eye-watering sums slosh around equities as investors took advantage of ample liquidity in the market. Tech was a key beneficiary thanks to societal shifts brought about by Covid-19, like working from home and increased digital adoption.
As a result, apps promising grocery delivery in under 30 minutes and fintech services letting consumers buy items with no upfront costs and virtually anything to do with crypto attracted hundreds of millions of dollars at multibillion-dollar valuations.
In a time when monetary stimulus is unwinding, those business models have been tested.
“An entire industry got ahead of its skis,” Parson said in an interview. “It was very much driven by hedge fund behaviour, where funds saw a sector that is growing, got exposure to that sector, and then bet on a number of companies with the expectation they will be the market leaders.”
“They pushed up the valuation like crazy. And the reason why it was possible to do that was because there were no other places to go with the money at the time.”
Maëlle Gavet, CEO of startup accelerator program Techstars, agreed and said some later-stage companies were “not built to be sustainable at their current size.”
“A down round may not be always possible and, frankly, for some of them even a down round may not be a viable option for external investors,” she told CNBC.
“I do expect a certain number of late stage companies basically disappearing.”
Technology
Nvidia positioned to weather Trump tariffs, chip demand ‘off the charts,’ says Altimeter’s Gerstner
Altimeter Capital CEO Brad Gerstner said Thursday that he’s moving out of the “bomb shelter” with Nvidia and into a position of safety, expecting that the chipmaker is positioned to withstand President Donald Trump’s widespread tariffs.
“The growth and the demand for GPUs is off the charts,” he told CNBC’s “Fast Money Halftime Report,” referring to Nvidia’s graphics processing units that are powering the artificial intelligence boom. He said investors just need to listen to commentary from OpenAI, Google and Elon Musk.
President Trump announced an expansive and aggressive “reciprocal tariff” policy in a ceremony at the White House on Wednesday. The plan established a 10% baseline tariff, though many countries like China, Vietnam and Taiwan are subject to steeper rates. The announcement sent stocks tumbling on Thursday, with the tech-heavy Nasdaq down more than 5%, headed for its worst day since 2022.
The big reason Nvidia may be better positioned to withstand Trump’s tariff hikes is because semiconductors are on the list of exceptions, which Gerstner called a “wise exception” due to the importance of AI.
Nvidia’s business has exploded since the release of OpenAI’s ChatGPT in 2022, and annual revenue has more than doubled in each of the past two fiscal years. After a massive rally, Nvidia’s stock price has dropped by more than 20% this year and was down almost 7% on Thursday.
Gerstner is concerned about the potential of a recession due to the tariffs, but is relatively bullish on Nvidia, and said the “negative impact from tariffs will be much less than in other areas.”
He said it’s key for the U.S. to stay competitive in AI. And while the company’s chips are designed domestically, they’re manufactured in Taiwan “because they can’t be fabricated in the U.S.” Higher tariffs would punish companies like Meta and Microsoft, he said.
“We’re in a global race in AI,” Gerstner said. “We can’t hamper our ability to win that race.”
Jaque Silva | Nurphoto | Getty Images
YouTube on Thursday announced new video creation tools for Shorts, its short-form video feed that competes against TikTok.
The features come at a time when TikTok, which is owned by Chinese company ByteDance, is at risk of an effective ban in the U.S. if it’s not sold to an American owner by April 5.
Among the new tools is an updated video editor that allows creators to make precise adjustments and edits, a feature that automatically syncs video cuts to the beat of a song and AI stickers.
The creator tools will become available later this spring, said YouTube, which is owned by Google.
Along with the new features, YouTube last week said it was changing the way view counts are tabulated on Shorts. Under the new guidelines, Shorts views will count the number of times the video is played or replayed with no minimum watch time requirement.
Previously, views were only counted if a video was played for a certain number of seconds. This new tabulation method is similar to how views are counted on TikTok and Meta’s Reels, and will likely inflate view counts.
“We got this feedback from creators that this is what they wanted. It’s a way for them to better understand when their Shorts have been seen,” YouTube Chief Product Officer Johanna Voolich said in a YouTube video. “It’s useful for creators who post across multiple platforms.”
WATCH: TikTok is a digital Trojan horse, says Hayman Capital’s Kyle Bass
CEO of Meta and Facebook Mark Zuckerberg, Lauren Sanchez, Amazon founder Jeff Bezos, Google CEO Sundar Pichai, and Tesla and SpaceX CEO Elon Musk attend the inauguration ceremony before Donald Trump is sworn in as the 47th U.S. president in the U.S. Capitol Rotunda in Washington, Jan. 20, 2025.
Saul Loeb | Via Reuters
Technology stocks plummeted Thursday after President Donald Trump’s new tariff policies sparked widespread market panic.
Apple led the declines among the so-called “Magnificent Seven” group, dropping nearly 9%. The iPhone maker makes its devices in China and other Asian countries. The stock is on pace for its steepest drop since 2020.
Other megacaps also felt the pressure. Meta Platforms and Amazon fell more than 7% each, while Nvidia and Tesla slumped more than 5%. Nvidia builds its new chips in Taiwan and relies on Mexico for assembling its artificial intelligence systems. Microsoft and Alphabet both fell about 2%.
Semiconductor stocks also felt the pain, with Marvell Technology, Arm Holdings and Micron Technology falling more than 8% each. Broadcom and Lam Research dropped 6%, while Advanced Micro Devices declined more than 4% Software stocks ServiceNow and Fortinet fell more than 5% each.
The drop in technology stocks came amid a broader market selloff spurred by fears of a global trade war after Trump unveiled a blanket 10% tariff on all imported goods and a range of higher duties targeting specific countries after the bell Wednesday. He said the new tariffs would be a “declaration of economic independence” for the U.S.
Companies and countries worldwide have already begun responding to the wide-sweeping policy, which included a 34% tariff on China stacked on a previous 20% tax, a 46% duty on Vietnam and a 20% levy on imports from the European Union.
China’s Ministry of Commerce urged the U.S. to “immediately cancel” the unilateral tariff measures and said it would take “resolute counter-measures.”
The tariffs come on the heels of a rough quarter for the tech-heavy Nasdaq and the worst period for the index since 2022. Stocks across the board have come under pressure over concerns of a weakening U.S. economy. The Nasdaq Composite dropped nearly 5% on Thursday, bringing its year-to-date loss to 13%.
Trump applauded some megacap technology companies for investing money into the U.S. during his speech, calling attention to Apple’s plan to spend $500 billion over the next four years.
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