m-a
Business Management

This month in M&A: Has the music stopped for tech values?

This is a contributed piece by Brett Cole of ansarada
 

An acquaintance of mine is off to join Uber.

His motivation is simple: garner equity options in the ride hailing app that was valued at $50 billion last month.

A month is a very long time in markets. This week's dramatic sea sawing of equity indices should give pause to my acquaintance's starry eyed hopes of riches. From Beijing to Berlin, venture capitalists and start up executives must be running multiple analyses on what implications stock market gyrations have on their own myopic valuations.

There are 115 companies valued at $1 billion or more, according to the Wall Street Journal and Dow Jones VentureSource. How they got such astronomic valuations has not been made clear. But the formula goes something like this: hot startup raises money from well-known Silicon Valley investors who sotto voce tell reporters what the company is worth. However, the rationale of such enormous valuations is never made transparent. We have to believe what we read when we are told Uber is worth $50 billion.

Public markets are less forgiving. The harsh glare of an initial public offering, may, if the story is told well enough, leave some pixie dust on the stock pre first day of trading. But my guess is that no board of directors or venture capital firm is going to want their favourite company subject to the grubby handling of public markets at this particular period of time. Nor does it seem, more importantly, is there an appetite for such IPOs from investors, many of whom prefer stocks with a bottom line.

The reality of the market place is what I fear my soon to be Uber acquaintance has to face, at least in the short-term.

Wall Street Journal and Dow Jones VentureSource:

Company

Latest Valuation

Total Equity Funding

Last Valuation

Uber

$50 billion

$5.6 billion

July 2015

Xiaomi

$46 billion

$1.4 billion

December 2014

Airbnb

$25.5 billion

$2.3 billion

June 2015

Palantir

$20 billion

$1.5 billion

July 2015

Snapchat

$16 billion

$1.2 billion

May 2015

Flipkart

$15 billion

$3 billion

April 2015

Didi Kuaidi

$15 billion

$3 billion

July 2015

SpaceX

$12 billion

$1.1 billion

January 2015

Pinterest

$11 billion

$1.3 billion

February 2015

Dropbox

$10 billion

$607 million

January 2014

 

Workplace culture

It is indeed an irony that as Wall Street, read finance everywhere, has been examining how it can attract and retain people as the lure of riches in tech land attract many of those who would have sought jobs at investments bank, one of tech’s biggest names has been the subject of a none too flattering portrait of its work place culture.

The New York Times reporting of what it is like to work at Amazon makes even the unforgiving climate of high finance seem a trifle tame. One woman who cut back working at night and weekends to take care of her dying father was told she was “a problem,” by her boss at Amazon. Another woman who miscarried was told the day after the tragedy by her Amazon: "“From where you are in life, trying to start a family, I don’t know if this is the right place for you.”

The New York Times investigation of Amazon proves yet again how unforgiving corporate life is, particularly at a company that has no incentive to change its ways because it is so successful. Why try a little human tenderness when such emotion is deemed weak, along with compassion and empathy for others that one works alongside with. Amazon’s Anytime Feedback Tool is manipulatively used by many to “bury” colleagues, reports the New York Times.

All in all Amazon sounds like the cutthroat world of investment banking. Perhaps the two worlds of tech and finance are not so far apart after all. Investment banking analysts that have survived two years of unrelenting grind seem well prepared for life at Amazon.

Looking ahead: End of summer

Global venture capital firms like some to their storied investments have ballooned in growth over the last few years. Such firms have set up offices as far afield as Mumbai and Berlin as they have searched for startups with staying power.

But if there is further turmoil in financial markets, causing a more strident analysis of tech valuations, then the expansion and investments made by some of venture capital’s most storied names will come under scrutiny.

The global commitment of venture capital will be tested under such conditions as well as the commitment of the limited and general partners of the firm’s funds.

Still, the global boom in capital raising by venture capital has inspirited a whole new generation of such funds in Asia, Europe and South America. If US firms retreat to their home market then there are plenty of others to take their place.

PREVIOUS ARTICLE

« Why is football transfer tech stuck in the 1980s?

NEXT ARTICLE

Manchester United vs. Chelsea: Who will win at sports tech? »
author_image
IDG Connect

IDG Connect tackles the tech stories that matter to you

  • Mail

Recommended for You

Trump hits partial pause on Huawei ban, but 5G concerns persist

Phil Muncaster reports on China and beyond

FinancialForce profits from PSA investment

Martin Veitch's inside track on today’s tech trends

Future-proofing the Middle East

Keri Allan looks at the latest trends and technologies

Poll

Do you think your smartphone is making you a workaholic?