Last week, Netskope, a cloud-based cybersecurity startup and a portfolio company of Fabrica Ventures I, announced it had surpassed the $500M ARR mark.
Simultaneously, Netskope’s CEO said the company has no immediate plan to go public. “We don’t need more capital. And IPO really comes down to growing awareness. Our path absolutely is to get to an IPO, perhaps when the markets are ready and elections are over”.
So, what is going on with the markets? Why aren’t they embracing leading companies in growing sectors like Netskope?
1) The most obvious reason is that with the current 5.25% interest rates — close to the 7.0% statutory goal of pension funds — capital heavily flows into money-market funds, which have surged to over $6.0T, doubling since 2018.
2) Despite Nasdaq/NYSE reaching new record highs, most of the gains are concentrated in the Magnificent Seven
3) Meanwhile, the rest of tech stocks are suffering from tachycardiac volatility …
4) … Even though they do not seem relatively overpriced – it is challenging to compare here due to the limited number of tech stocks outside the US exchanges. But, for instance, Totvs, the largest Brazilian tech company with a market cap of $3.3B, trades at a forward PE of 28x, while Oracle trades at 20x and Salesforce at 24x (multiples not adjusted for the large differences in the cost of capital) – Yahoo Finance, 6/7/24.
5) Additionally, the macro environment is not supportive at all (all over the globe): soaring deficits and debts, hot and sticky, rapidly weakening macro data across multiple fronts, the risk of war escalation, etc.
6) Which stalls the growth of tech companies (longer and more expensive sales cycles) and shifts the focus towards profitability
Conclusion
“Patience you must have, my young Padawan” – Yoda