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Quick Thought Of The Week: Unicorns

It wasn’t that long ago when privately-owned tech companies boasted that they didn’t need the financial help of equity markets. They said there was more than enough venture capital outside of the stock market to fund their continued expansion.

How things have changed.

What started as a trickle has turned into a steady team of unicorns – or private companies worth more than $1 billion – galloping for flotation on the stock market. It hasn’t quite turned into a cavalry charge, yet. But that might only be a question of time.

Venture capitalists and founders of those techs are starting to get anxious. It’s all very well sitting on paper profits measured in the hundreds of millions. But it’s always hard cash that counts. And what better way than to flog shares to the unsuspecting.

Amongst the growing list of initial price offerings (IPOs) are co-working company, WeWork, ride-sharing platform, Uber, accommodations facilitator Airbnb, messaging platform, Slack, and digital scrapbook, Pinterest. The market value of these businesses can be eye watering.

Pinterest is valued at around $10 billion. WeWork is valued at around $20 billion. Airbnb could be worth around $35 billion. Uber is valued at between $20 billion and $25 billion, though some reckon it could be north of $100 billion!

But what does the mad dash for IPOs tell us? The last time that we saw something similar ended badly. However, they say this time it is different.

The bursting of the dot.com bubble on NASDAQ in 2000 sent shock waves around the world. Before the dot.com crash, ultra-low interest rates increased the availability of capital. The US Fed even fuelled investment in the stock market by touting the cheapness of share valuations.

Does any of this sound vaguely familiar?

There is plenty of cash sloshing around global markets today. Interest rates are low and could even go lower. And there is someone out there living in a big white house that measures success by how high the US stock market can go.

History, it is said, doesn’t always repeat itself. But it rhymes.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.