Weekly Update #108: Public vs. Private Tech Valuation

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Hello Investors,
 
 
The narrative of tech investing in 2015 continues to be around public vs private valuations. The New York Times just published this article about how smaller hedge funds are more actively investing in public tech companies in the search for fundamental value. The thesis goes that as private market valuations escalate, their publicly listed counterparts provide better investment value and are eligible acquisition targets. 
 
The latter component makes sense: established, public tech companies valued under $5 billion provide larger acquirers with a vetted bolt-on acquisition target. But that doesn't always make it a success: consider the case of Borderfree, a company acquired by Pitney Bowes this summer for $14/share, or $395 million. The company actually went public in March 2014 at $16/share. Zipcar, also a VC-backed tech company, suffered a similar outcome when it was acquired by Avis for $500 million in January 2013, a 32% discount to the company's IPO price in 2011. As with most investments, it's all about the timing. 
 
The higher valuations of private companies are typically indicative of higher growth than their publicly traded competitors. Consider vacation site HomeAway, an investment highlighted in the Times article, which grew revenues 26% over the past year. While Airbnb is reportedly raising at a $24 billion valuation (compared to HomeAway's $3 billion market cap), sources say that its revenue grew from $250 million in 2013 to an estimated $900 million in 2015: a 90% revenue growth rate.
 
Put another way, hedge funds making investments in smaller public tech companies have a much different thesis than that of venture investors. 
 
In other news...
Hyde Park Angels provides a useful run-down of the key terminology in a venture capital term sheet.
 
Online bazaar Alibaba continues its expansion with a strategic investment into the brick-and-mortar retailer, furthering the e-commerce trend of merging online and offline industries.
 
A look into components of employee equity compensation that deserve attention and reevaluation as employees seek to ensure clarity and fairness in their compensation.
 
An exploration of the nuances of web-enabled companies versus explicit technology companies, and the forces at play that keep us categorizing young, innovative companies as 'tech start-ups'.
 
Thanks,
Phil Haslett | Founder & Head of Investor Relations | EquityZen 
 
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