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U.S. Tech Funding – What’s Going On?

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Re: U.S. Tech Funding – What’s Going On?

#151

Post by cmullen »

nzealand wrote: post #107
timr wrote: post #27

Note that they use the valuations of public companies to argue that the market isn't overvalued, then spend 90% of the presentation arguing that all of the value is being "created" in the private markets, and that IPOs are dead. Moreover, they're basically arguing that it's logical for investors to pile into these late-stage deals, because waiting around for IPO is a losing strategy. If you believe this data, it does…

Public tech company's price to earnings does look historically reasonable. And private companies are slowly going public at current valuations. Yet public tech company's earnings to revenue is unusually high. http://www.philosophicaleconomics.com/2015/01/explosion/ Open source doesn't fully explain this, as this alone is not a barrier to entry. As US rates slowly increase, I expect to see an increase in currency head…

Mid-sized mature software businesses have figured out how to run very very profitably (25%+ EBITDA margins). Tech management teams have learned from the giants (Oracle, SAP, etc.) about how to extract maximum value from their IP and past investments. This innovation helps drive earlier stage investment, as investors know that there is a potential for a ton of cash flow available down the road.

Re: U.S. Tech Funding – What’s Going On?

#152

Post by mcintyre1994 »

pbreit wrote: post #127
Animats wrote: post #117

Earlier quoted context omitted.

"It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley." No, it's a consequence of low interest rates. "Private equity" is mostly borrowed money. Think "leveraged buyout", not "all-cash deal". Here's a list of the top 10 private equity lenders for 2011.[1] #1 is Bank of America. Back in 2000, 1-year Treasury bills were paying around 5.11%. Today they're around 0.26%. Debt financ…

I don't think this is accurate. All the companies I know would rather go public in order to enable investors/employees/shareholders to get some liquidity (and for the company to gain credibility). The secondary market, while fulfilling this desire to some extent, is still not even close to what you get in an IPO. The onerous regulations are still clearly depressing the IPO market.

Sorry to dig on such a small part of your comment, but could you elaborate on the credibility comment? I'm just wondering, if you're pulling uber sized rounds and valuations - who are you lacking credibility from that matters? Can't going public damage credibility too if the pricing is wrong?

Re: U.S. Tech Funding – What’s Going On?

#153

Post by sfjailbird »

bane wrote: post #90
thorfish wrote: post #3

"And the tech IPO is basically dead. The tech IPO market is at early 1980's volumes. For most of the 90's the majority of tech funding was public. This has reversed. It used to be routine to hit $20 million in revenues and go public. Not anymore." It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley. Before an engineer might vest after four or five years, just as the company is…

I'd also add that until the public validation of an IPO and some time trading on the markets, tech companies have just become investment "tokens" that hold arbitrary amounts of wealth as "valuations" that make no meaningful sense. M&A efforts are simply capturing this fanciful valuation and hoping they can sell this token off in some way for more to somebody else. It's like putting $1 in a sock and under your mattres…

You just described the stock market. Public tech companies that make no profit (and/or issues no yields) trade at 30 times earnings. No connection to fundamentals, but everybody just agrees that is what it should cost.

Re: U.S. Tech Funding – What’s Going On?

#154

Post by golergka »

javajosh wrote: post #124
Animats wrote: post #117

Earlier quoted context omitted.

"It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley." No, it's a consequence of low interest rates. "Private equity" is mostly borrowed money. Think "leveraged buyout", not "all-cash deal". Here's a list of the top 10 private equity lenders for 2011.[1] #1 is Bank of America. Back in 2000, 1-year Treasury bills were paying around 5.11%. Today they're around 0.26%. Debt financ…

So the rich borrow cheaply, invest the money, and profit?

Since I sense (from the phrase "the rich") that you mean it as something bad: it's not. Just imagine whom would you rather lend your hard-earned money to: a wealthy investor with a proven track record, or a regular Joe. Well, that's exactly what the bank you keep your money it is doing.

Re: U.S. Tech Funding – What’s Going On?

#155

Post by [deleted] »

JDDunn9 wrote: post #140
blazespin wrote: post #133

Earlier quoted context omitted.

Those who dedicated their life to capital allocation, yes, they are allowed to borrow cheaply and profit. I thought about going into this in university, but there is something very soul draining about it. Too bad I discovered warren buffet later in life. More power to these folks. In fact, we shouldn't even be taxing them. We should just start taxing things like mansions, yachts, and super cars by 5x.

There's no logical reason not to tax investors. They aren't unique butterflies that make the economy flourish. Investment is just one component of a functioning economy. So is education, saving, consumption, etc. Too much focus on one is not a good thing. This is one of the reasons we have so many investor bubbles. Also, the wealthy have no other options than to invest their money. What else would they do with it, pu…

[deleted]

Re: U.S. Tech Funding – What’s Going On?

#156

Post by dylanjermiah »

pbreit wrote: post #126

1999-2000 was insane. Regulators killed the IPO market such that all the gains are being made by venture investors and the public is totally missing out.

>Regulators killed the IPO market such that all the gains are being made by venture investors and the public is totally missing out.

A point which seems to be lost in this discussion.

Re: U.S. Tech Funding – What’s Going On?

#157

Post by javajosh »

golergka wrote: post #154
javajosh wrote: post #124

Earlier quoted context omitted.

So the rich borrow cheaply, invest the money, and profit?

Since I sense (from the phrase "the rich") that you mean it as something bad: it's not. Just imagine whom would you rather lend your hard-earned money to: a wealthy investor with a proven track record, or a regular Joe. Well, that's exactly what the bank you keep your money it is doing.

Is the money the Fed lends out "hard-earned" or is it manufactured as a side-effect of fiscal policy (e.g. quantitative easing)? Does it seem right that public policy should so clearly benefit the wealthy by forcing money into the economy through private allocation experts?

There should be a way for entrepreneurs to tap into that money directly, avoiding the wealthy, gate-keeping middle-men. I resent those people, because the irony is that such people make money as money flows through them, thanks to fees, so even their wealth doesn't necessarily mean they are any good at allocation. Even if you take into account returns, in a growing economy when most bets are good bets. Money should flow through people who know how to make real things, not just make decisions.

Re: U.S. Tech Funding – What’s Going On?

#158

Post by MichaelMoser123 »

bd_at_rivenhill wrote: post #91
nostromo wrote: post #66

Earlier quoted context omitted.

It's another case of the cure (Sarbanes-Oxley) being worse than the disease (another Enron).

Frankly, we ended up with the cure AND the disease. Special purpose entities were used by Enron to muddy up its accounting so nobody could tell that it was doing stupid deals to hit its quarterly numbers and wasn't really making any money, and then they were used again during the real estate bubble on an even wider scale to mask the risks of the mortgage origination machine (with convenient help from the bone-headedn…

i think your proposed requirements would be on top of existing regulations, so they would also create a lot of additional work for lawyers and accountants.

it might be that what stands behind Enron and other bubbles is a decrease in the rates of profit : and so it goes that people put stuff into more and more risky schemes in order to maintain expected growth targets; in order to do so they have to hack/find ways around existing regulations, but we know that you can hack any system of rules ;-)

All that might also be true for internet businesses : we had a big growth in tech business over the previous decades, but now it might get increasingly difficult to achieve the same rates of return (or not).

Re: U.S. Tech Funding – What’s Going On?

#160

Post by zby »

_delirium wrote: post #130
bane wrote: post #90

Earlier quoted context omitted.

I'd also add that until the public validation of an IPO and some time trading on the markets, tech companies have just become investment "tokens" that hold arbitrary amounts of wealth as "valuations" that make no meaningful sense. M&A efforts are simply capturing this fanciful valuation and hoping they can sell this token off in some way for more to somebody else. It's like putting $1 in a sock and under your mattres…

I'm not sure public markets are a unique way of getting "real" prices. Private-equity sales are a real market with real money; if Google buys a company for $50m, that's an actual market transaction that valued the company at $50m. Is the idea that public markets provide better price discovery than private sales do? If so, is there empirical evidence that publicly traded companies really are more accurately valued tha…

In private sales people take big chunks and have incentives to investigate the companies deeply - much of the public market is about small chunks where people don't do as deep investigations, because it would cost them more than the potential benefit. Of course in the public market there would also be some big chunks buyers that would do those deep investigations - but it is not guaranteed how big influence they would have on the price.
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