What does it mean for the tech sector that Square's IPO is less than its valuation at the last round of financing?
Not that much as long as Square has a decent, well subscribed IPO.
The market sets prices. And they do go up and down.
If the last Square rounds were priced “too high” for a ’15 IPO … and it looks like they may have been, with hindsight at least … then comparable late-stage valuations will fall. Probably, in some cases, they already have.
Multiples in particular, go up and down. The market decides.
This isn’t going to cause a freezing of the capital markets. But having a lot of IPOs price at less than the last round means implicitly, those deals were all overpriced by at least 50-100%.
So … revenue multiples paid in valuations will come down to adjust to that.
In SaaS, in many cases, they already have. If valuations fall 1/3d, they fall a 1/3d. It will be OK. Companies will get funded. They’ll just have to wait longer to achieve the same valuation, or sell more of the company.