Venture capital is replacing IPOs

As Greece continues to make headlines I thought it might be worthwhile to take a step back and look at other market trends. The venture capital firm Andreesen Horowitz put together a slide pack about technology funding. One slide hit home about the value created in private versus public markets. As a growth investor I'm always looking for the next great company. Finding a company like Apple, Microsoft and Google is much easier said than done! But it is getting harder because of the money in private markets. A company can raise enough money in the private market that they're delaying going public. By the time they do go public its usually at a decent size because of previous private market valuations.

IPO's too late for stock investors

The ride sharing service Uber is worth $50 billion and Airbnb worth $24 billion all these transactions were conducted in the private markets. They are large valuations and we don't have much information on their financials to see if they make sense. But the issue is these companies don't have to go public to receive these investments. By the time a lot of these fast growing technology companies list most of the money has already been made. See below.

When Facebook conducted their IPO it was at a valuation of $104 billion Google at the time of their IPO was worth $23 billion. For Facebook to match Microsoft's public market returns it would need to be worth $45 trillion. Going forward its going to much harder to find the next Apple and Google because the company will have already made large gains due to private market funding.

As you can see above the majority of money is being raised privately rather than through the public IPO market. This is great for VC firms like Andreesen Horowitz (maybe they can list) but for the rest of us it makes it just makes it that little bit harder. You can find their great 53 slide chart pack at http://a16z.com/2015/06/15/u-s-tech-funding-whats-going-on/.

Jason

http://www.decisiveassetmanagement.com/

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