Ukraine Tensions Renew a Market Slide | Chief Investment Officer

The Ukraine crisis continues to weigh on stocks this morning, as charges fly back and forth between Washington and Moscow about the large Russian force gathered on the Eastern European nation’s border.

The S&P 500 is off 1.4%, reversing two positive showings that came on Tuesday and Wednesday amid Russian President Vladimir Putin’s claim that he is withdrawing some of its troops. But the US has countered that the Russians have actually added soldiers to the border.

“Markets continue to watch events in Ukraine, cycling back and forth between risk-on with the lessening of tensions and risk-off as tensions increase,” Independent Advisor Alliance Chief Investment Officer Chris Zaccarelli wrote in a research note. “This morning, markets are concerned about the Russian troop buildup and a lack of trust in Putin’s declaration that they are beginning to remove troops from the region.”

US President Joe Biden said the US thinks Russia is “engaged in a false-flag operation to have an excuse to go in” to Ukraine. American officials said the Kremlin had added as many as 7,000 troops to its buildup on the border.

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Meanwhile, European Union leaders have unanimously approved a set of potential sanctions against Russia if hostilities break out and the situation at the Ukrainian border escalates, the bloc’s foreign policy chief, Josep Borrell, said after a leaders’ meeting on Ukraine.

Too much money chasing too few … Well, you know the rest. Actually, no scarcity of startup companies exists in need of venture capital funding. But a boatload of VC funding is available to fund them, and then some. Result: Values of VC-backed companies are vaulting.

Of course, doubts are rising lately about how much longer this party can go on. As another old adage goes, trees don’t grow to the sky.

Meanwhile, a huge supply of capital has sparked “unprecedented valuation growth across all stages of the venture market, with many stages leading to a doubling in median valuations last year,” according to PitchBook research. This continues a trend that has been ongoing for several years.

In fact, so-called “step-ups,” meaning increases in company valuations, for late-stage VC investments, jumped to an average 2.9 times the original value, from 1.7 in 2012.

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This valuation expansion might not go on much longer, warned Cameron Stanfill, lead VC analyst for PitchBook. The stock market has been ebbing lately, which means possible smaller payouts for exits—when the VC-backed firms go public or get bought by larger businesses.

The “private companies nearing an exit may receive some pushback on valuations from corporate acquirers or public market investors,” he wrote in a research report. Hence, “we’re likely to see some compression in those step-ups for 2022 exits.”

The amount of VC dollars invested is truly daunting, CB Insights data shows. The sum last year skyrocketed to $621 billion, more than double 2020’s $294 billion. These investments included 1,556 deals of more than $100 million, a 147% boost from the record set the year before, 630.

What’s more, VC-supported unicorns have proliferated lately, by CB Insights’ reckoning. These private companies with a valuation of at least $1 billion now number 959, more than twice the total reported a year earlier. Further, 44 such startups have achieved decacorn status—valuations of more than $10 billion.

Exits for the time being are vibrant. Worldwide, merger and acquisition deals exceeded the 10,000 level in 2021 for the first time, increasing 58% from 2020. There were 950 venture-backed initial public offerings, with a median IPO valuation of $547 million, versus 647 a year earlier.

The largest VC-backed IPO was ByteDance, the Chinese parent of the social video platform TikTok, worth an estimated $140 billion. SpaceX, Elon Musk’s rocket and satellite outfit, was second on CB Insight’s list, with a valuation of $100.3 billion.