The latest report on venture capital funding in the tech sector from CB Insights, the US information service tracking investment, has revealed an interesting trend in the nature of tech businesses coming up to IPO. First, the investment statistics: the second quarter of 2014 has seen more than US$13 billion of venture investments – the largest figure for any one quarter since the height of the dot.com boom in 2001. As can be seen from the graph, this is part of an upwards trend – nearly US$24 billion has been invested in VC deals the first half of the year, 71% better than the first six months of last year.
Digging into the numbers, though, it becomes clear that this is not due to a wider spread of investments, but increasingly large late-stage funding into mature businesses (such as Uber and Airbnb). Commentators believe this growth of late-stage investment is due partly to the relaxation of certain restrictions on private companies to continue to raise finance in the US JOBS (Jumpstart Our Business Startups) Act, but also in making sure mature businesses have sufficient funds to enable a successful floatation.
In a recent interview with Vox, Marc Andressen – co-founder of Netscape and now venture capitalist at Andressen Horowitz – argued that heavy regulation such as Sarbanes-Oxley means a company wishing to go public has to prepare itself for a much higher level of scrutiny than it would have done a decade ago. This involves costs that only large mature businesses can handle. When Netscape listed, it did so on a valuation of US$2 billion. Compare this to Twitter’s valuation of US$25 billion in 2013 or Facebook’s US$100 billion + in 2012.
To anyone thinking this means the tech capital markets are stale, there is a one-word repost: Alibaba. More on this in next month’s IPO Watch.