by Doug Casey, Casey Research:
Today, we’re wrapping up our mini-series featuring top tech insider and early-stage investor Jeff Brown. Read on to learn why he says right now is “quite possibly the greatest investment opportunity of your life”…
Exponential growth will bring amazing new developments and transform the world as we know it.
Very soon, we’ll have cars that drive themselves and robot assistants. We’ll use advanced technology to edit our genes and eradicate diseases.
There are dozens of private tech companies working on products and services that will alter and create entire industries.
The next Uber is out there… the next Facebook is out there… the next Google is out there. They will produce life-changing returns for early investors.
When it comes to these types of firms, you need just one hit to make enormous sums of money. Gains of 3,000%-plus are not uncommon in these areas of revolutionary technology.
Remember, people who bought Tesla after its IPO are now up more than 1,000%. People who bought Google after its IPO are now up more than 1,400%.
Many innovative private companies are going to go public in the next three years.
They will go on to create huge new industries, grow into $200 billion-plus global giants… and take investors along for the ride.
It’s quite possibly the greatest investment opportunity of your life.
But their extraordinary technology is just one part of this opportunity. The other part is due to an unusual circumstance in the stock market.
This circumstance has created a huge backlog of private companies that want to go public. It’s almost the financial equivalent of water behind the Hoover Dam.
A flood of new IPOs is about to hit the market.
The system for financing of technology companies and taking them public has completely changed in the last five years.
Back in the late 1990s or early 2000s, it used to be that if a private company had $20 – $50 million in revenues and free cash flow, it was time to go public.
By going public via an initial public offering (IPO), it gave these companies much-needed growth capital to invest and grow their companies to the next stage of development.
Today, things are very different.
There are two important new dynamics in play.
First is that angel investing dollars and venture capital dollars (these are early backers of new firms) go much further than they used to. As computing power falls, so does the cost of launching a new technology company.
Due to the impact of how cheap it is to launch a technology company and bring a product to market, small amounts of capital can create billion-dollar companies. Technology companies can get to the stage where they are able to generate free cash flow and don’t necessarily need to go public.
It is also worth mentioning that venture capital financing in the United States has been on an uptrend over the last 10 years.
More venture capital was put to work in 2015 than any time in the past 10 years. At $77 billion, the total was an increase of 13% over 2014 levels and about double the level invested in 2012.
It is also important to note that this increase came with a decrease in the number of deals. 2015 had only about 86% of the number of deals compared to 2014. This indicates that there was a larger number of large deals.
The second dynamic is that large banks, hedge funds, and institutions began allocating larger percentages of their investment portfolios to private companies, primarily technology companies. Hundreds of billions of dollars have flowed into venture-capital-backed companies by these institutions. Fifteen years ago, these large firms were essentially not present at all.
In the chart below, we can clearly see the dramatic increase in investment in the number of venture-backed companies by non-VC entities since 2009.
In 2009, the investments by non-VC entities such as mutual funds, hedge funds, family offices, and asset managers were mostly in the single digits.
By 2015, the number of investments being made by these entities went through the roof.
In fact, by September of 2015, 78% of the billion-plus financings were led by non-VCs, up from only 60% a year before.
With so much money at play from these non-VC sources, it was necessary for these firms to invest in larger and larger private deals.
Each deal takes a lot of effort. For example, if a fund has $1 billion to invest in a given year, will they do 100 deals of $10 million, or 10 deals of $100 million? The answer is that they tend to gravitate toward a smaller number of larger deals.
This explains financing deals like Uber in August of 2015 of $1.2 billion. That fundraising valued Uber at around $50 billion at that time. It has since raised funds valuating the company at $62.5 billion.
All this is creating the most exciting investment opportunity of our lifetimes.
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