April 21, 2015

Tech startup valuations surge

The valuations of technology startups have been surging as hedge funds and mutual funds pour money into this space in an effort to profit from the next big thing. Many institutional investors have taken an interest in technology startups, hoping to select the right ones and then profit when they hold an initial public offering.

Silver Lake Management LLC made headlines by turning a $3.2 billion paper profit when it invested in Alibaba before the the online retailer held the largest IPO in history, according to Hedgeco.net. After Silver Lake generated this result, hedge funds the world over took notice of technology startups.

High valuations
As hedge funds and mutual funds have rushed to take part in pre-IPO funding, they have been paying between 15 and 18 times projected sales for the coming year, three people familiar with the matter told Bloomberg. In comparison, the most expensive companies traded for 10 to 12 times projected sales five years ago, one of these individuals stated.

This trend of rising valuations can be seen throughout the tech industry. Uber's valuation has surged since the middle of 2013, rising more than tenfold to reach $40 billion in December, Bloomberg reported. Online scrapbooking firm Pinterest Inc. raised $367 million last month, which provided the company a valuation of $11 billion.

Robust inflows
As these companies soared in value, investors put $59 billion into these firms in 2014, according to figures provided by Seattle-based research firm PitchBook Data and reported on by Hedgeco.net. That figure was the most since the dot-com era.

Due to these robust capital flows, 62 different companies managed to push their valuation beyond $1 billion, according to the news source. This figure was almost 200 percent higher than the number of companies that achieved such a high valuation in 2013.

Because startup companies are attracting so much cash, some market observers have expressed concerns that another bubble - similar to the one that built up before the dot-com crash - is now brewing, Bloomberg reports.

Growth opportunities
Amid the recent surge in valuations, the only course of action is growth. Garnet Capital Advisors can help. An experienced loan sale advisory firm, Garnet can introduce marketplace lenders to banks or origination platforms where they can purchase loans and origination capabilities in specialty areas.