Tech Companies Pre-IPO Valuations


Technology-based firms have always been valued differently by public and private capital markets. The year 2016 was marked by aggressive assessments of tech companies reminiscent of the Dot Com bubble of 2000 before their IPO. It is feared that they will be too aggressive and that the market will return to a position similar to that of the beginning of the century.

The current pre-IPO companies are more geographically diversified compared to 2000. It will be very interesting to see which regions the unicorns will remain dominant after the IPO. India and China seem to hold an advantage, their combined clientele tripling that of the United States. It would also be important to note that their e-commerce markets are growing much faster. What has always favored American companies and continues today is their ability to expand to the global audience.

Public Tech Companies ratings remained relatively consistent.

In 2000, public technology firms had a value 165% higher than the market. The valuation of public technology companies was on average 80 times higher than their profit in 2000. In contrast, today's public technology companies are valued on average at 20 times their profits. We can also see that they are valued only on average 10% compared to the general market. Among the public companies, there does not seem to be any significant risk of bubbles. SOEs seem much more coherent than private companies

The valuations of private technology companies are on the rise.

• The number of pre-IPO funding rounds has increased

• The average size of venture capital investments more than doubled between 2013 and 2015

• The market has experienced unprecedented average transaction sizes

• 2015 saw the highest number of transactions ever recorded in a year

• Unprecedented increases between fundraising rounds

• Funds committed worldwide rose from 110 billion in 2012 to 150 billion in 2015 (the highest level ever).

Technology companies also remain three times more private on average. They try to avoid the IPO until the accounting profits are realized and the soles acquired. This means that when companies go public, they are bigger, more mature, better established and more prepared than ever before.

Since 2000, it seems that the market has adopted a more cautious approach to the valuation of public technology companies. It is also possible that new start-ups are much more robust and deserve high valuations before the IPO. Any correction now, if necessary, will probably look softer than the correction of the last tech bubble.

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