[ATLANTA] For the past few years, investors have warned of a bubble in privately held tech companies: Valuations simply couldn't be justified based on comparisons with their publicly traded counterparts. Companies such as Uber, the ride-hailing company that has since gone public, were raising venture-capital funding at higher and higher valuations even as bluechip tech powers such as Apple were given valuations that made them seem like old-fashioned industrial companies.
Look back to early 2016 to see how extreme the sentiment difference was then between public and private tech companies. That was the trough in the global economic slowdown that began in mid-2014. Manufacturing was weakening, and industrial production had fallen on an annual basis in the US. Corporate credit markets, particularly in the energy sector, were signalling economic trouble and analysts were calling for recession.
Despite this turbulence in the economy and the stock market, this was one of the frothiest times for tech unicorns, or closely held companies valued at US$1 billion or more. In December 2015, Uber Technologies Inc raised US$2.1 billion, giving it a valuation of US$62.5 billion - a higher valuation than it has four years later as a publicly traded company. The same month, Lyft Inc raised US$1 billion, giving it a valuation of as much as US$4.
Last year was rockier for unicorns, as many of them suffered disappointing debuts when they went public. No company proved more embarrassing than WeWork, which had to cancel its initial public offering amid doubts about the valuation it wanted and a litany of corporate governance concerns. Because of the disappointing performance of many high-profile IPOs and the pall that WeWork cast over private companies, the bar will be higher for startups to go public in 2020.
Closely held companies may also have their troubles securing capital in the future; SoftBank, the high-profile backer of WeWork and Uber, recently walked away from funding rounds it had intended to complete.
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