Private technology companies reached enormous valuations last year, leading many to believe a bubble is looming. Private giants now include Uber and Chinese mobile company Xiaomi, whose valuations have eclipsed $40 billion.
Look for more tech companies to accumulate huge rounds of private funding while holding off on public offerings, said Glenn Solomon, managing partner of venture capital firm GGV Capital.
“Private market options are as attractive an alternative to IPOs as I’ve ever seen in my 18-year career,” Solomon told CNBC’s “Squawk Alley” on Friday.
A “golden age” in technology, driven by innovations in industries like cloud and mobile, have helped push valuations, Solomon said. He added that not only venture capital firms, but also long-only funds and hedge funds, have bought into private tech companies anticipating growth.
“I don’t see that abating any time soon because there’s so much demand for growth,” Solomon said.
In the current environment, companies have raked in capital without the effort required to file an IPO.
“You can raise more money, you can raise it faster, with more certainty and higher valuation without diverting much of your time and attention in a private round versus an IPO,” Solomon said.
While some private tech giants hold financial profiles to justify their valuations, other younger companies have caught the venture capital wave without foundations to match, Solomon noted. Though private funding has led to massive, sometimes inflated valuations, there’s “no way to beat a freely trading market” once companies grow large, he said.
Image credit: CC by Simon Cunningham