Atman March 2024 Update
As we navigate the complexities of the current market landscape, Atman Capital has observed several key trends and shifts that are pivotal for our investors and the broader investment community.
March 2024 has been marked by the Nasdaq reaching all-time highs, largely driven by the significant performance of what has been dubbed the “Magnificent 7”: Meta, Amazon, Apple, Google, Tesla, and Nvidia. These companies now account for approximately 29% of the total market capitalization of the S&P 500, showcasing their unparalleled influence on the market.
Multiples for high-growth cloud companies have stabilized at 10.8x as of February, a reduction from its peak of 25x in October 2021. The market’s current focus on profitability and free cash flow over mere growth signifies a crucial shift in valuation and investment strategies across sectors. After almost eight consecutive quarters of challenges in the private markets, a cohort of companies will be able to soft-land their troubles, diverging from the more severe downturns previously anticipated despite seeing record numbers of companies shutting down.
Companies are adopting varied approaches to navigate market conditions in this evolving environment. Some are reaching new valuations, while others are facing down rounds or exploring mergers and acquisitions as viable paths forward. The fundraising landscape has become increasingly challenging, with the path from Seed to Series A rounds becoming less predictable and more companies opting to enhance revenue and productivity gains to avoid down rounds.
The number of companies that raised at least $10 million yet shut down in 2023 more than doubled compared to 2022. This trend highlights the risks and uncertainties facing startups today. Additionally, “tourist” limited partner (LP) money has subsided, and traditional institutional investors have scaled back their commitments.
Among startups on Carta that raised at least $5 million in priced equity, 61 shut down in January and February of this year alone, more than the total that closed up shop in Q4 2023. Furthermore, more startups that had raised at least $10 million shut down in the first two months of 2024 than in Q4 2023, which was the prior record.
A particular area of interest that continues to dominate is AI investments, which remain the hottest category by far. Later-stage multiples for AI-related companies command a 3x premium over non-AI deals, highlighting the market’s bullish outlook on AI technologies.
The market has shown signs of stabilization, with multiples in private markets now more closely aligning with public markets. However, several companies in the private markets still face significant challenges. Despite this, there is potential for a soft landing for a cohort of resilient companies that have managed to navigate these turbulent times with caution and discipline. Another sign that the venture market found its footing is that venture firms called more than $1B in capital in January of this year, a number that was last seen in May 2022.
As Atman Capital continues to monitor these trends, our commitment to sustainable growth, prudent investment practices, and disciplined valuation approach will guide our efforts to deliver value to our investors. We thank you for your trust and partnership and look forward to navigating these challenges and opportunities together.
Warm regards,
Atman Capital
