From the Wall Street Journal:
While Uber’s Valuation Soars, Two Tech IPOs Run Into Reality
These days in Silicon Valley, venture capitalists appear to be valuing companies in only one direction: up. Two companies may soon break that pattern when they go public, a warning sign for investors in sizzling startups.
App-analytics firm New Relic Inc. and data-crunching software company Hortonworks Inc. this week proposed to sell shares to the public at a 25% to 50% discount to the roughly $1 billion valuations that some venture-capital firms and big mutual funds paid earlier this year.
Bankers for Hortonworks and New Relic could be proposing conservative initial public prices to entice investors. The target prices for IPO shares often are revised higher as bankers get a better sense of demand.
Still, if the IPOs do value New Relic and Hortonworks well below their private-market valuations, it could fan worries that such valuations have gotten out of whack with public markets.Related: Saturday's "Barron's Cover: Tech Stocks--The Bubble Is In the Private Market"
Beyond Uber Technologies Inc. and its near-record $41 billion valuation, other tech startups such as software provider Dropbox Inc. and data-mining startup Palantir Inc. have also attracted multibillion price tags in a relatively short period. Venture-capital firms, hedge funds and mutual funds have plowed billions of dollars into those companies on the expectations they will continue to soar in value.
There are now at least 48 private U.S. companies valued at $1 billion or more by venture-capital firms, versus 27 at the start of the year, according to Dow Jones VentureSource. That is a record number—during the height of the dot-com boom in 2000, there were 10 such companies.
Until this week, both New Relic and Hortonworks were on that list. But now those companies and their bankers need to reflect lower public-market valuations in their shares....MORE
