2015's Most Profitable Trend

By Matthew Milner, on Wednesday, January 14, 2015

Reflecting back on 2014, two stories stick in my head:

One represents a well-worn route to riches, a route that’s losing steam.

The other represents a new path to wealth –

A path that’s gaining momentum.

Drop in the Bucket

The first story is about what happened in the market for technology IPOs.

At first blush, 2014 looked like a banner year:

Tech companies raised $32 billion, up from $8 billion the year before.

But as it turns out, most of that $32 billion came from the Alibaba IPO.

Without Alibaba, tech IPOs brought in just $10 billion.

$10 billion is a lot of capital…

And it represents 25% growth over the prior year.

But compared to the story taking place elsewhere, it’s a drop in the bucket…

Mega Rounds

Last year, a small group of the world’s most promising private companies raised $31 billion.

Among these start-ups are the future Microsofts, Intels and Ciscos.

Each company in this elite group raised at least $100 million last year – this is what’s called a “mega” round.

What’s more, the number of these mega rounds doubled in 2014…

And the amount of capital they raised more than tripled.

Here’s what the longer-term trend for these mega rounds looks like, compliments of Mattermark, a deal intelligence company:

The red bars show the number of companies raising $100+ million rounds.

The blue line shows how much capital was raised.

This 10-year graph tells an important story about the shift taking place in the capital markets:

With ample access to growth capital in the private market, many companies are deciding not to go public.  

They’re opting to stay private instead.

Going public is expensive, and it opens up a company to scrutiny.

With their pockets stuffed with capital, companies are postponing their IPO…

Or sometimes, they’re putting it off indefinitely.

Bad News

For investors who’d hoped to buy into these elite, fast-growth companies at their IPO, these mega rounds are bad news.


For one thing, mega rounds dramatically increase a company’s value.

As an example, look at Uber, the taxi-hailing service:

Uber has already raised more than $3 billion in the private market –

And it’s already worth an estimated $40 billion.

At that level, much of its future growth has already been priced in.

If it IPOs, its sky-high valuation will limit price appreciation…

In other words, by the time it IPOs, the profits will already have been made by private investors.

End of The Stock Market?

Do these two stories mean we’re witnessing the end of the stock market?

Could the market’s ability to create wealth for investors like you be over?

No, we wouldn’t go that far.

But we do believe that, due to the factors we outlined above, the stock market won’t provide the types of returns investors have come to expect.

And when you put these factors in the context of the historical changes of the JOBS Act and equity crowdfunding – a world where all citizens will be able to invest in promising early-stage companies – the bigger trend becomes clear:

Capital is sidestepping the public markets…

Instead, it’s finding a path to the private markets.

So as you’re looking to create your own profit stories in 2015, think about the trends you read about today:

Think about investing in the private markets.

Best Regards,
Matthew Milner
Matthew Milner


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Tags: Uber JOBS Act Alibaba End Of The Stock Market

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