Concern is spreading through Wall Street about investment risks much more complex and unpredictable than those that played out in the 1999-2000 dot-com bust.
Some 75% of investment bankers, who make money helping companies go public, worry that the multibillion-dollar valuations of high-profile Internet companies aren’t justified, according to a recent survey by accounting firm BDO USA.
Objects of concern include recently minted public companies LinkedIn and Zillow. Others are Groupon and Zynga, which have filed to go public, as well as Facebook, Twitter, Yelp and Foursquare, which have not officially announced an IPO.
A decade ago, investors small and large bet big on Internet companies with no track records, many of which quickly failed. Today, wealthy individuals and institutional investors are betting big on a new generation of tech firms generating tangible revenues.
Much of the action is taking place in direct sales of large equity positions to big investors and in new private-market stock exchanges such as SharesPost and SecondMarket.
However, there is little assurance that today’s highflying tech companies can sustain breakneck growth, says Alex Daley, chief investment strategist at Casey Research.
Yet, given the anemic U.S. economy, investors are throwing caution to the wind. “All investors are desperate for growth right now,” says Daley. “Companies like Facebook get to set the terms on which they raise money in private transactions. Investors are willing to take on more and more risk to find growth.”
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2 Responses
Shhhhhh! Don’t tell anyone. I’m shorting them.
@Akuperma (#1): They are predicting a new recession even before this one is over. But don’t worry – your faith in yourself will see you through the next one as well. BTW, where in Brooklyn do you live?