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Weekly Update #217: Comparing Tech Multiples

EquityZen

Sep 19th, 2017

Comparing Tech Multiples

Our friends at Renaissance Capital put together this graph to show the rise in price/sales multiples, and also the premium paid for tech "unicorns".

Some main observations:

Multiples are at their highest in the past 10 years
We continue to see a multiple "premium" for unicorn tech companies at IPO (that is, their price/sales ratio is higher than the broader tech company universe). Unicorn tech companies are typically younger than public ones, and have more room for revenue growth. Therefore investors are willing to pay higher prices (sometimes referred to as a company's ability to "grow into their multiple")
The multiple "premium" has actually decreased over the past few years. In 2011-2014, the multiple "premium" was 4.5x, 6.6x, 6.4x, and 5.7x, respectively. This means that a unicorn tech company with $100 million in revenue in 2013 was worth $640M ($100M * 6.4x) more than its non-unicorn tech counterpart. That "premium" has averaged 2.6x between 2015-2017.

In other news...

Our very own Catherine Klinchuch released the EquityZen Cybersecurity Sector Report (EquityZen)
Social Capital says its 'IPO 2.0' is a better process for unicorns (Axios)
Slack Raises $250 Million; Tops $5 Billion Valuation (Fortune)
Alphabet Considers Lyft Investment of About $1 Billion (Bloomberg)
Fixing the ‘Brain Damage’ Caused by the I.P.O. Process (The New York Times)

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