Solving The ‘Tech Bubble’ Puzzle – McKinsey

Solving The 'Tech Bubble' Puzzle by David Cogman and Alan Lau - McKinsey & Co.

Public and private capital markets seem to value technology companies differently. Here's why.

Aggressive valuations among technology companies are hardly a new phenomenon. The widespread concerns over high pre-IPO valuations today recall debates over the tech bubble at the turn of the century—which also extended to the media and telecommunications sectors. A sharp decline in the venture-capital funding for US-based companies in the first quarter of the year feeds into that debate,¹ though the number of “unicorns”—start-up companies valued at more than a billion dollars—over that same period continued to rise.

The existence of these unicorns is just one significant difference between 2000 and...