Play Bigger Advisors, LLC, published an interesting study on Time to Market Cap (TTMC), a measure of the time it takes a company to reach certain market capitalization milestones such as $500 million, $1 billion, or $5 billion. Play Bigger observed that the speed of market cap growth for technology companies has almost tripled since 2000 and winners are measurably winning faster while losers are losing more quickly. Plenty of great data including a comparison of TTMC for Enterprise versus Consumer companies. Well worth a quick read.
In the ongoing debate over the current state of tech startup funding, some experts believe that we are in a bubble, with an imminent burst in the near future, while others perceive the state of venture capital and start-ups as being much less of a cause for concern. Although the majority of experts view the market as overvalued, there is a lack of unanimity regarding whether the market is in a bubble or not.
Here is an article posted on Betakit, providing the viewpoints of a number of investors who offer their insight into the tech bubble debate. Comparing their differing outlooks on the market helps to provide a greater level of perspective into this discussion.
With a recent record of 107 unicorns worldwide, the discussion over whether we are in a tech bubble has intensified. We’d like to present two conflicting viewpoints, from Jay Samit, CEO of SeaChange International, and from Conor Dougherty, technology correspondent of the New York Times.
While in disagreement over whether the market is currently in a bubble, both authors discuss the overvaluation of many tech companies. As venture capital firms invest rising amounts of money into startups, many companies become reliant on this financing and thus lack the ability to grow independently of their investors. What this means for tech startups is that when the inevitable public offerings occur, valuations will likely fall in a public market unable and unwilling to invest in them all. It is the companies that place an emphasis on disruptive technology with sustainable revenue models and profitability that will last.
To compare their perspectives, click here to read Samit’s contribution in the Wall Street Journal Accelerators, and here for Dougherty’s article in the New York Times.
Many Canadian technology startups are postponing their initial public offerings, due to reduced pressure from their initial investors and the abundance of financing available through venture capital funds. Canadian companies are now encouraged to wait to go public until their valuations exceed $500 million. This trend is also seen across the United States. In 2014, many US technology companies also delayed their IPOs, going public after an average of 11 years. This is a significant difference from the previous tech boom – in 2000, technology companies became publicly traded after an average of only six years of operations and valuations of $200 million.
Although enabling founders to build stronger businesses, delaying public offerings is not entirely without risk. By choosing late-stage funding rounds over public offerings, the likelihood of overvaluation for tech companies grows. Investors cannot guarantee that the public market will value the company as highly as their private valuation, leading to losses on their investments.
To read the Financial Post article on Canadian IPOs, click here
CB Insights recently published its list of private, venture-backed technology companies with valuations over $1 billion. It identified 56 such companies, many of which will be familiar to those who follow the tech sector, including Uber ($17 billion), AirBnB, and Dropbox (both $10 billion) along with some upstarts that receive a lot less press. There is also a name on the list that will be familiar to those who follow the Canadian tech sector: Shopify was listed with a valuation of $1 billion.
We are of course pleased to see a Canadian company on a list like this but we were also a little perplexed by the absence of another well known Canadian tech company: Hootsuite. Shopify received its billion-dollar valuation following its $100 million Series C round of financing in December 2013, bringing its total funding to $122 million. Hootsuite has raised nearly $285 million in funding, including a $60 million Series D one month ago. That level of funding would point towards a billion-dollar-plus valuation given current market conditions, so we were surprised to see it excluded from this list.
Regardless of whether or not Canadian companies make it onto a list like this, we remain very pleased to see our country’s tech start-ups raising significant rounds of capital. This includes Desire2Learn, which raised an $85 million Series B this past August, bringing its total capital to $165 million; BuildDirect, which has raised over $62 million through four rounds of fundraising; and Vision Critical, which has raised $42.5 million to date. We hope that this trend continues and that it is a sign of good times ahead for Canada’s tech industry.