VCs go all in for private tech companies

Technology is the only industry which covers all market segments worldwide. It offers a large array of opportunities for institutional as well as private investors. Technology companies are characterized by innovation and driven by competition. This results in shorter cycles and faster growth, which is exactly what investors are looking for. In order to avoid uncertainty Individual investors often opt for mainstream tech companies. Whereas, Institutional investors largely invest in upcoming technology and rely on its future success. In most cases, the thumb rule of finance ‘greater risk equals greater returns’ plays in favor of institutional investors as they often exit with massive payouts from their riskier tech investments.

Venture Capitalists are going all in private technology companies. In the past decade tech innovation has experienced rapid growth. Easy access of high-speed internet and an ever-increasing pool of tech developers, has driven technological innovation to its peak. Venture Capitalists aim to capitalize on this opportunity by continually searching for innovative tech companies that have revolutionary business ideas.

Today, numerous VC funded private tech companies have valuations of over a billion dollars. In the United States alone, there are more than 35 such VC funded startups. These private tech companies operate in a wide range of industries, from e-commerce and social media to automobile and energy. As per a report by Dow Jones Venture Source, Chinese firm Xiaomi, which is the world’s third largest smartphone company, leads the list with a valuation of $46 billion and has total equity funding of $1.4 billion.

Helion Venture Partners, Accel Partners, Blume Ventures and Sequoia Capital are the leading VC firms active in the Asia-Pacific region. Their main focus is to tap into India’s growing e-commerce space, these VCs have funded many successful e-commerce businesses such as Flipkart, Myntra, Commonfloor, Yepme, MakeMyTrip and JustDial.

Cloud based application is another sector in the tech space which is quickly gaining confidence among Venture Capitalists. The latest success story is of a Michigan based tech firm Blue Medora. In 2013 Blue Medora had landed $1.25 million from angel investors and this year it managed to rake in $4.6 million from venture firms Start Garden and Grand Angels. The company develops software which is used to manage cloud based operations of multinational organizations.

Cybereason, a firm which develops real-time cyber threat detection software, also managed to land a $25 million investment from Venture Capitalists. Cybereason was formed by four ex-Israeli intelligence officers in order to protect computer systems from complex cyber-attacks. Cybereason is in the process of developing a first of its kind threat detection software which will identify and eliminate threat from cyber attackers on a real-time basis.

There are many investors who refrain from investing in technology and prefer to stay far away from this sector. They are of the opinion that this sudden boom in technology may well be another tech bubble. However, Venture Capitalists believe otherwise. Over the last five years investment in private tech firms has quadrupled and majority of the funding is done by Venture Capitalists. As many VC funded tech startups continue to go public with multi-billion dollar valuations, VCs exit with massive payouts. Even if the tech boom is a bubble, Venture Capitalists are of the opinion that the industry still has a long way to go before the bubble bursts.

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