Private Tech Growth as an Asset Class Keeps On Rolling
In 2016, we declared the emergence of late stage, VC-backed companies, powered by “private IPOs,” mega rounds of $100 million or more, as a new asset class. At the time, however, critics warned of a bubble, that valuations were too high. Private market trends over the past 24 months confirm that private IPOs are not only the new norm but may be replacing traditional public IPOs.
Nearly $350 billion invested in U.S. private tech companies since 2009
With a 23 percent CAGR (Compound Annual Growth Rate) over nearly a decade, the pace of investment in private tech companies has remained consistently strong. Investors have poured $350 billion into these companies, increasing from $13 billion in 2009 to $72 billion over the last 12 months, according to our analysis of Pitchbook data. 2018 could prove to be record-setting, with $46 billion already invested in the first half of the year. That’s a whopping $16 billion increase over the previous record set in the first half of 2017.
Since 2014, majority of the growth in VC funding has come via private IPOs
We estimate that late-stage mega deals represent nearly 70 percent of incremental VC dollars invested since 2014. Private tech companies raised roughly $4 billion via private IPOs in 2010. That number jumped more than 7 times to $30 billion in 2017. The trends we are seeing so far in 2018 hint at another record year for late-stage mega deals.
Private IPOs have raised three times more capital than public tech IPOs
The 160 or so VC-backed tech companies that went public over the past 4 years raised a combined $34 billion, according to Pitchbook and University of Florida business professor Jay Ritter. By comparison, private firms raised $110 billion in total capital from private IPOs during this period, roughly 3 times the amount of capital raised via traditional IPOs, because of mega-funding rounds. Are we seeing a new Moore’s law with regard to venture funding?
A zero-sum game is developing among public and private IPOs
We are in the midst of the longest, least volatile and most sustained tech rally since the dawn of the personal computing. NASDAQ is up more than 400 percent from 2009. But despite this bull market, tech IPOs have steadily declined from about 50 in 2014 to about 30 per year. At the same time, the number of private IPOs has increased from about 70 in 2014 to over 130 (annualized) in 2018. We believe a zero-sum game has developed. As companies stay private longer, they are effectively shifting value creation from the public markets to private markets.
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