Editor’s Note: Hundreds of the greatest technology companies in history are just waiting to go public… Think of it like a massive bottleneck or a dam that is ready to explode. Today, tech expert Jeff Brown explains this phenomenon – and what you can do to profit from it.
Right now, there’s a window of opportunity that we’re unlikely to see again in our lifetimes… the kind that leads to extraordinary profits.
In short, there’s a massive backlog in technology companies going public, literally hundreds of companies… and some are among the greatest technology companies in history.
The system for financing technology companies and taking them public has completely changed in the last five years.
Back in the late 1990s or early 2000s, it used to be that if a private company had $20 million–$50 million in revenues and free cash flow, it was time to go public.
By going public, it gave these companies much-needed capital to invest and grow their companies to the next stage of development.
Today, things are different.
There are two important, new dynamics in play.
First, angel-investing dollars (funds from private individuals) and venture capital dollars (funds from private investment groups) go much farther than they used to. As the cost of computing power falls, so does the cost of launching a new technology company.
Due to how cheap it is to launch a technology company and bring a product to market, small amounts of capital can create billion-dollar companies. Technology companies can get to the stage where they are able to generate free cash flow and don’t necessarily need to go public.
It is also worth mentioning that venture capital financing in the United States has been on an uptrend over the last 10 years.
More venture capital was put to work in 2015 than at any time in the past 10 years. At $77 billion, the total was an increase of 13% over 2014 levels and about double the level invested in 2012.
It is also important to note that this increase came with a decrease in the number of deals. 2015 had only about 86% of the number of deals compared with 2014. This indicates that while there were fewer deals overall, there was a larger number of large deals.
The second dynamic is that large banks, hedge funds, and institutions began allocating larger percentages of their investment portfolios to private companies, primarily technology companies.
Hundreds of billions of dollars have flowed from these institutions into venture-capital-backed companies. Fifteen years ago, these large firms were essentially not present at all investing in these kinds of private technology companies.
In the chart below, we can clearly see the dramatic increase in investment in the number of venture-capital-backed companies by non-venture-capital entities since 2009…
In 2009, the investments by non-venture-capital entities such as mutual funds, hedge funds, family offices, and asset managers were mostly in the single digits.
By 2015, the number of investments made by these entities went through the roof. In fact, by September 2015, 78% of the billion-plus financings were led by non-venture-capital firms, up from only 60% a year before.
With so much money at play from these non-venture-capital sources, it was necessary for these firms to invest in larger and larger private deals.
Each deal takes a lot of effort. For example, if a fund has $1 billion to invest in a given year, will it do 100 deals of $10 million or 10 deals of $100 million? The answer is that it tends to gravitate toward a smaller number of larger deals.
This explains financing deals of $1.2 billion like Uber in August of 2015. That fundraising valued Uber at around $50 billion at that time. It has since raised funds, valuing the company at $62.5 billion.
All of this is creating the most exciting investment opportunity of our lifetimes.
This trend of privately financing technology companies has caused the entire technology IPO market to dry up over the last few years. The graphic below shows how much the IPO market for technology companies has slowed down.
In 2015, there were only 24 technology IPOs, representing only 14% of the total IPOs for the entire year. These are the lowest levels seen since the 2008–2009 financial crisis. In 2016, we saw even fewer: only 21 technology IPOs.
For comparison, in 2007, or pre-financial crisis, there were 60 technology IPOs responsible for 28% of total funds raised in the public markets.
New companies with fantastic leading-edge technologies have been able to raise private capital in the hundreds of millions or even billions… giving them time to develop their products and business models before going public.
This dynamic has caused a backlog of hundreds of the greatest technology companies in history just waiting to go public.
Think of it like a massive bottleneck or a dam that is ready to explode.
Venture capital investors, investment banks, hedge funds, and institutional investors put money into private technology companies for one reason: to make outsized profits. They are willing to be patient… to a point.
Eventually, the investors expect more… They demand an exit. Exits sometimes come in the form of an acquisition by another technology company. But the really massive gains come from taking these companies public via an IPO.
That means that normal retail investors are about to have a chance to invest in these next-generation technology companies.
I hope you’re prepared. We have a chance to own the future. Let’s take it.
P.S. Many technology companies will go public over the next two years. As the “dam breaks,” these companies will access the public markets, raise billions of dollars, and make fortunes for investors. You can learn more about this special situation – and how you can profit as an Exponential Tech Investor – right here.