The Last Market Boom Ended 4 Years Ago. Here’s How Current Conditions Look Similar

Nearly four years ago, the market hit a cyclical peak under conditions that in many ways look quite similar to what we’re seeing today.

Sky-high public tech valuations. Booming startup investment. Sharply rising valuations. And, a few cracks emerging on the new offering front.

Sure, there are quite a few differences in the investment environment, which we’ll explore in a follow-on piece. For this first installment, however, we are focusing on the commonalities, with an eye to the four highlighted above.

No. 1: Sky-high public tech valuations

First, both then and now, tech stocks hit unprecedented highs.

In mid-November 2021, the tech-heavy Nasdaq Composite index hit an all-time peak above 16,000. Gains stemmed largely from sharply rising tech share prices.

Today, the Nasdaq is hovering not far below a new all-time high of over 23,000. The five most valuable tech companies have a collective market cap of more than $16 trillion. Other hot companies, like AMD, Palantir Technologies and Broadcom have soared to record heights this year.

While private startups don’t see day-to-day valuation gyrations like publicly traded companies, their investors do take cues from public markets. When public-market bullishness subsides, private up rounds tend to diminish as well.

No. 2: Booming startup investment

In late 2021, just like today, venture investment was going strong.

Last time, admittedly, it was much stronger. Global startup funding shattered all records in 2021, with more than $640 billion invested. That was nearly double year-earlier levels. Funding surged to a broad swathe of startup sectors, with fintech in particular leading the gains.

For the first three quarters of this year, by contrast, global investment totaled a more modest $303 billion. However, that’s still on track for the highest tally in years. The core driver is, of course, voracious investor appetite for AI leaders, evidenced by OpenAI’s record-setting $40 billion financing in March.

The pace of unicorn creation is also picking up, which brings us to our next similarity.

No. 3: Up rounds and sharply rising valuations

At the last market peak, valuations for hot startups soared, driven in large part by heated competition among startup investors to get into pre-IPO rounds.

This time around, we’re also seeing sought-after startups raising follow-on rounds in quick succession, commonly at sharply escalated valuations. Per Crunchbase data, dozens of companies have scaled from Series A to Series C within just a couple of years, including several that took less than 12 months.

We’re also seeing prominent unicorns raising follow-on rounds at a rapid pace this year. Standouts include generative AI giants as well as hot startups in vertical AI, cybersecurity and defense tech.

No. 4: A few cracks emerging

During the 2021 market peak, even when the overall investment climate was buzzier than ever, we did see some worrisome developments and areas of declining valuations.

For that period, one of the earlier indicators was share-price deterioration for many of the initial companies to go public via SPAC. By late 2021, it had become clear that there were numerous “truly terrible performers” among the cohort, including well-known names such as WeWork, Metromile and Buzzfeed.

This time around, the new offerings market hasn’t been quite so active. But among those that did go public in recent months, performance has been decidedly mixed. Shares of Figma, one of the hottest IPOs in some time, are down more than 60% from the peak.

Online banking provider Chime and stablecoin platform Circle have shown similar declines.

At this point, these are still generously valued companies by many metrics. But it’s also worth noting the share price direction in recent months has been downward, not upward.

Next: Watch for more cracks

Looking ahead, one of the more reliable techniques to determine whether we are approaching peak or already past is to look for more cracks in the investment picture. Are GenAI hotshots struggling to secure financing at desired valuations? Is the IPO pipeline still sluggish? Are public tech stocks no longer cresting ever-higher heights?

Cracks can take some time to emerge, but inevitably, they do.