13 Sep 2019 8:23 AM

2019 has seen a raft of tech companies including Slack, Pinterest and Uber listing their shares on the New York Stock Exchange with other well known names such as Airbnb and WeWork expected to be listed soon.

What do these companies have in common?

Technology companies listed typically share the same two characteristics:

  1. A large initial company valuation; and
  2. Significant trading losses and little or no prospect of immediate profitability

Seemingly the two characteristics are at odds with one another. Your traditional investor would ask ‘How can a loss making company be worth so much?’

So what exactly is it that makes tech companies so valuable?

  1. IP (Intellectual Property) – the unique idea and technology to deliver a service to its users.
  2. Rapid expansion – technology companies that are initial players in a sector of the industry can quickly sign up global users overnight and take a large market share.
  3. Public buzz – Is the technology something talked about or used by the general public? There is always the eternal hope from investors they are signing up for the next Facebook or Amazon.

Obtaining a realistic valuation can be difficult in this industry as it’s such as fast moving sector. For every success there are hundreds of failures. A bright shining star might fizzle out the next day, leaving investors feeling they have been burnt.

Before seeking or making an investment in any technology business it is essential you obtain the right advice and valuation to help you through the process.

If you are looking to invest in a technology business, or if you are a technology company seeking a valuation for your business and need assistance with the process, please contact our specialist corporate finance team.