As of today, the S&P 500 is back within 4% of its all-time high. Even NASDAQ is now only down 11% from peak. So the party must be back on for high-flying startups too? Nope - don’t bring out the punch bowl yet. Startups are still trading down 50-70%.

First, it’s worth emphasizing how well the overall US stock market has performed recently. The S&P 500, an index that represents the stock market performance of the 500 largest US companies, fell almost 20% in 2022 but is now up almost 20% this year. As mentioned, it’s 4% off its high.

Startups are a different story.

There’s no public startup index–public companies are by definition no longer startups–but there are some public proxies for the startup scene.

One is the Renaissance IPO Index, which is an index of companies that have IPO’d in the last few years. Like startups, these are usually unprofitable tech companies. And the index’s largest holdings–Airbnb, Snowflake, Palantir, and Doordash–were recently startups.

The IPO Index, while up somewhat from its recent lows, is still down 51% from its high in February 2022.

Another startup proxy is Cathie Wood’s ARK Innovation fund, which, like VCs, attempts to invest in companies focused on–her words–“disruptive innovation.” Its largest holdings are Tesla, Coinbase, Roku, and Zoom. ARK is also slightly up from recent lows but is still down 68% from its peak in February 2022.

Finally, while there’s no public index, startup shares do trade privately.

A June 22nd article in Bloomberg reported: “As of May 31, shares of startups were trading at a median discount of 61% compared to valuations at their latest funding rounds.”

Triangulating these data points indicates that startups are still trading down 50-70% from their peaks, which is quite a contrast from the overall US stock market.

Why?

As everyone knows, since late 2021 the Federal Reserve has raised interest rates at the fastest pace in more than 40 years. Higher interest rates make investing in unprofitable businesses much less attractive. The incentive to invest in a highly speculative, nearly always initially unprofitable company–basically a startup–goes way down when the government will guarantee you a 5%+ annual return.

Stocks in the S&P 500, while riskier than government bonds, are at least almost all profitable, usually pay dividends, and have much larger upside potential than bonds. Investors have noticed and have driven prices close to all-time highs.

Still, with the economic outlook improving, why is the S&P nearly back to peak but startups are not close? Because startups peaked at absurdly high levels in 2021. From March ‘20 to February ‘21, IPO and ARK were up 200% and 270%, respectively, while the S&P 500 was up less than 50%. Startups had much farther to fall and when the Fed burst the bubble, they did.

The overall US stock market is back but, unfortunately for startup founders and investors, we have a long way to go.