Pre-IPO appraisals of technology companies
Technology-based companies have always been valued differently by the public and private capital markets. 2016 has shown aggressive pre-IPO valuations of tech companies reminiscent of the 2000 Dot Com bubble. There is concern that they may be too aggressive and cause the market to fall back into a position similar to the one. of the turn of the century.
Today’s pre-IPO companies are more diverse, geographically, compared to 2000. It will be very interesting to see which regions the unicorns will continue to dominate after the IPO. India and China appear to have an advantage, as their combined consumer base is triple that of the United States. It would also be important to note that your ecommerce markets are growing much faster. What has always favored American businesses, and continues to this day, is their ability to reach out to a global audience.
Valuations of public technology companies have remained fairly constant.
In 2000, public technology companies were valued 165% more than the general market. The valuation of public technology companies averaged 80 times their earnings in 2000. In contrast, today’s public technology companies are valued, on average, at 20 times their earnings. We can also observe that they are only valued, on average, 10% over the general market. Among public companies, there does not appear to be any significant bubble risk. Public companies appear to be much more consistent compared to private companies.
Valuations of private tech companies have been on the rise.
• The number of pre-IPO funding rounds has increased
• The average size of risk investments more than doubled between 2013 and 2015
• The market experienced unprecedented average transaction sizes.
• In 2015, the highest number of agreements registered in a year was registered.
• Unprecedented increases between funding rounds
• Globally committed funds increased from $ 110 billion in 2012 to $ 150 billion in 2015 (the highest level ever).
Tech companies also stay private on average 3 times longer. They are trying to avoid the IPO until accounting gains are made and bases are acquired. This means that at the IPO, companies are bigger, more mature, established and more prepared than ever.
Since 2000, it appears that the market has taken a more conservative look at valuing public technology companies. It is also possible that startups are much more robust and deserve their high pre-IPO valuations. Any correction now, if necessary, will appear milder than the correction from the last tech bubble.