The investment in private cloud companies in Europe, Israel and the United States dropped 42 percent in the third quarter of 2022, showed a report from venture capital firm Accel.
51 cloud software developers raised funds at valuations of over $1 billion during the first quarter of 2022. Only three cloud software developers raised funds at valuations of over $1 billion in the third quarter, Accel’s 2022 Euroscape report showed.
The valuation of publicly listed cloud companies has dropped to $1.2 trillion from $2.8 trillion in the last 12 months, Accel said.
Valuations have dropped at software firms as varied as Microsoft and Shopify and across areas such as data analytics, security and collaboration.
U.S. data analytics software maker Snowflake Inc has the highest enterprise value-to-revenue multiple over the next 12 months. Last month, the multiple was 20 times versus 61 times in September last year.
“After several explosive years of growth, it’s clear that a major reset is underway. Rising interest rates and climbing inflation has led to contracted software valuations,” said Philippe Botteri, a partner at Accel.
Still, the migration of local software operations to the cloud has not lost momentum and spending on automation and digital transformation is likely to rise to $2.8 trillion by 2025 from $1.8 trillion in 2022, Accel said.
There is around $770 billion available to buy cloud companies, with $440 billion of cash on the balance sheets of strategic investors and $330 billion of dry powder from technology-focused private equity funds, Accel estimated.
