The Smart Money is Investing in Tech

A businessman checking his investments on his phone.

Photo credit: Shutterstock

Where is the smart money going when it comes to tech companies? Some leading experts will be exploring that subject at Fortune’s upcoming Brainstorm TECH conference.

Anton Levy of General Atlantic, Kirsten Green of Forerunner Ventures, and David Trujillo of TPG will share the stage in a panel discussion on what industries, ideas, or trends they’re betting on; what they’re seeing in the tech space; and the changes they’re watching for.

It’s no surprise that technology is on people’s minds, with the June ransomware attacks and Microsoft’s announcement of its new SMB-oriented software-as-a-service bundle. A recent article in Institutional Investor says that tech deals are booming in the PE sector.

Not only that, but 2017 has been a boom year for tech IPOs, with Snap going public in March, and Carvana, Cloudera, Elevate Credit, Mulesoft, Netshoes, Okta, and Yext also making their public trading debut. The aggregate value of these IPOs is a whopping $37.5 billion, with Snap making up the lion’s share at a valuation of approximately $20 billion.

Today’s tech IPOs are already light years ahead of those in 2016. By May of 2016, only two companies had gone public. Between January and May of 2017, more than four times that number went public, and more public offerings may be on the horizon. (Tech companies that have been floated as possible IPOs, despite rigorous denial from some of them, include Airbnb, Dropbox, Pinterest, Spotify, and Uber.)

Because of the growing success and valuation of tech companies, private equity money is now flowing into the sector, accounting for almost 40.1 percent of U.S. buyouts last year. This is the highest proportion on record. Firms with a broad range of investment interest, such as General Atlantic, KKR, and Carlyle, are jumping into the game and are being joined by tech-focused PE firms like Golden Gate Capital and Siris Capital.

“An increasing number of tech-related companies have moved beyond the traditional territory of venture capital funds, and the sector as a whole has increasingly become a target for the wider private equity industry,” Christopher Elvin, Head of Private Equity at Prequin, told Institutional Investor.

China has also become a PE magnet. However, concerns about the possible imposition of U.S. trade tariffs, plus concerns about its credit, real estate, and technology sectors seem to be cooling interest in the nation. However, when risk and potential are calmly weighed, China may be the most promising private equity market in the world.

This echoes sentiments that General Atlantic CEO Bill Ford shared in a recent interview with Bloomberg. “We’ve been bullish on China despite lots of mixed sentiment—the country is succeeding in pivoting its economy from export and manufacturing to services and consumption,” he said. “We’re seeing companies there generating 15 to 20 percent-plus nominal GDP growth.”

With so many potential IPOs on the horizon, and some really promising companies to be found in emerging markets, it’s no wonder that the smart money is betting on tech to be the next private equity profit-maker.

I will be curious to see what Levy, Green, and Trujillo share at Brainstorm TECH about their vision for private equity in the tech sector and if it matches up with what other observers have been saying.

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About DevonJ140
I am currently an Accounting Director living in New York City. I love reading and learning more about business, finance, tech, and current events.

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