Technology-based companies have always been valued differently by the public and private capital markets. 2016 showed aggressive pre-IPO assessments of technology companies, reminiscent of the 2000 Dot Com bubble. There are fears that they could be too aggressive and push the market back to a position similar to the turn of the century.
Current companies before the IPO are more diverse geographically than in 2000. It will be very interesting to see in which regions unicorns will remain dominant after the IPO. India and China seem to have an advantage with their combined user base, which triples that of the United States. It would also be important to note that their e-commerce markets are growing much faster. What has always benefited American companies and continues to this day is their ability to reach a global audience.
The assessments of public technology companies remain quite consistent.
In 2000, public technology companies were rated 165% higher than the overall market. The valuation of public technology companies was on average 80 times higher than their profits in 2000. In contrast, today’s public technology companies are valued at an average of 20 times higher than their profits. We can also see that they are estimated at an average of 10% of the total market. There does not appear to be a significant risk of a bubble among public companies. Public companies seem to be much more consistent than private companies
The ratings of private technology companies are rising.
• The number of pre-IPO funding rounds has increased
• The average amount of risky investments more than doubled between 2013 and 2015.
• The market experienced an unprecedented average size of transactions
• 2015 reported the most transactions ever registered in one year
• Unprecedented increase between funding rounds
• Funds committed worldwide have increased from 110 billion in 2012 to 150 billion in 2015 (the highest level so far).
Technology companies also stay private for an average of 3 times longer. They try to avoid an IPO until they make accounting profits and get the basics. This means that in an IPO, companies are bigger, more mature, established and better prepared than ever.
Since 2000, the market seems to have taken a more conservative view of the valuation of public technology companies. It is also possible that new start-ups will be much more stable and deserve their high marks before the IPO. Any correction now, if necessary at all, will probably seem softer than the correction of the latest technology bubble.