Technology Financing
Abstract:
The number of tech private financings slightly decreased in 2016. According to Tracxn, the global tech sector attracted a total of 4,538 rounds of funding and $49 billion in private placement capital, down approximately 10% on both counts. However, it’s important to note that the “new normal” run rate achieved between 2014 and 2016 is two times the 2007- 2013 average. A lockstep change has clearly occurred, and it’s holding. Moreover, the tech sector is outperforming the market as a whole. According to CB Insights, US VC deals and dollars across all sectors dropped by 16% and 20%, respectively, during 2016. Looking at the EMEA region in isolation, 1Q17 saw near-record funding activity for private tech companies. During the quarter, 869 funding rounds were completed for a total of €4.5 billion, a 17% increase from 4Q16. In contrast to Silicon Valley where 2 out of every 3 start-ups are B2C, the exact opposite holds true in Europe. Most of the start-ups are B2B. During the quarter, FinTech continues to dominate in Europe as a vertical, but in terms of horizontal technology types, artificial intelligence is seeing the most activity followed by data analytics and SaaS. There are now 300+ tech-focused fund managers with over $1 trillion in uninvested capital, with even more cash coming in the door. This means that 32% of these tech investors’ AUM is currently allocated to dry powder. With IPO markets relatively dormant, until recently, and the supply of dry powder building, private placements and buyouts have increas- ingly become the norm for emerging tech companies. Venture investors and entrepreneurs often prefer private equity over going public because valuations are compelling and privacy carries a premium in this highly compliance-driven and litigious world. These and other forces have fundamentally altered the technology IPO market, driving a shift to a robust and highly efficient private market. Another clear trend that has evolved recently is logjam at the top. In the final quarter of 2016, mega rounds and new unicorn formations slowed to 15 and 5 respectively, a five quarter low. One potential catalyst for this slowdown in mega deals is the stagnation in public markets. Instead of achieving liquidity through an IPO, strategic investors are forced to continue participating in the “growth curve” of these companies. Just 21 tech IPOs came to the market during 2016, the lowest number since 2009. So far in 2017 there has been a sharp rebound in IPO activity, 18 in the first quarter alone, which could serve as a positive catalyst to financing activity in the private markets, starting at the top. This panel of distinguished technology investors will discuss: recent trends in the market, the most promising opportuni- ties, how to value companies in today’s environment, the best ways to raise capital, and how entrepreneurs should be building companies in today’s ever-changing technology industry.
Discussion Topics:
Please introduce yourself, your firm, and take a minute to express an opening view on today’s discussion topic.
Is there a specific sector or business model that is receiving the majority of financing? Will that trend continue or are there other sectors gaining traction?
Are valuations / expectations reasonable for deals you are seeing lately? What do you expect going forward?
Are fund flows impacting private and public tech valuations more so than normal?
As the technology boom has extended and broadened its reach throughout the Global Economy and Investment Community, what has changed in technology finance? How do recent market activities affect or drive what you are looking for in start-ups and how you evaluate exit oppor- tunities? What are the different pools of capital for technology financings? What metrics does a Series A need in the current environment versus Series B or Series C?
How do investors determine between private financing and public financing?
Have lingering geopolitical pressures altered your views on investing internationally?
How can early stage companies make private placements successful and what are the common pitfalls?
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