There’s been a lot of recent talk about whether private late stage tech company valuations are too high. There are arguments on both sides of the table which are covered at length elsewhere.
Rather than rehashing these arguments, I’ll share some anecdotal evidence which makes me believe that late stage tech valuations overall are indeed higher than what can be justified by most companies’ fundamentals and the size of the opportunities ahead of them. However, there are still diamonds in the rough, or so we believe.
As early stage investors, our focus is on companies with 0 to 2 years of operating history. We therefore rarely see opportunities to invest in billion dollar companies which almost always take longer than 2 years to reach that valuation. In fact, we hadn’t seen any until the last month. I started working at Aslanoba Capital in June 2013 so that’s 20 months without a single opportunity to invest in a billion dollar tech company.
However, in the last month alone we’ve been offered the opportunity to invest in 3 billion dollar companies. Since this is abnormal for us, similar opportunities must also abnormally be popping up on the desks of other investors without a late stage focus, or perhaps even no tech focus at all. This is usually a signal that there’s too much demand for these offerings and this results in higher prices.
Among these 3 companies, we decided to invest in 1. We participated in Lyft’s latest round led by Rakuten. Since we made this investment, we clearly don’t think that all private late stage tech companies are overvalued. Investors need to be increasingly careful, but there are still diamonds in the rough.