Let’s talk about the SaaS selloff

If you bring up bad news about the price of technology stocks on Twitter, very helpful people will send you multi-year charts that put recent declines into historical context. Yes, thank you; I was not aware you could zoom out.

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The instinctual need to proclaim that selloffs of tech stocks don’t matter is either a bad-faith argument or poorly disguised fear. More on that in a moment. Regardless, the recent negative price movement of tech stocks — and software shares in particular — matters.

Why? Because we are not only seeing software stocks flirt with bear-market territory in technical terms, but also a pretty notable pullback in the value of even the fastest-growing technology companies. This means that public valuation multiples — key indicators for yet-private unicorns and younger startups — are shrinking.

Have valuations shifted enough to slow the current venture capital bonanza? Probably not. But we could be closer to that tipping point than you’d think.

Declines

The Bessemer Cloud Index is trackable on the public markets thanks to the WisdomTree Cloud Computing Fund, which is essentially a trading version of the company set.

After reaching a 52-week high of $65.51 last month, the market value of the basket of software companies slipped to $53.00 as of this morning. That’s a decline of 19.1%, or 90 basis points under the 20% required for a particular asset, or asset collection, to reach technical bear-market territory.

We’re close, in other words.