Editor’s Note: Today, we’re sharing the final installment of tech expert Jeff Brown’s two-part essay series about massive investment opportunities available today. (In case you missed it, you can read part one of Jeff’s series here.)
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From Jeff Brown, editor, Exponential Tech Investor: In part one of my two-part essay series, I focused on a single, amazing idea…
We are going to see more changes to the economy over the next 10 years than we saw in the previous 40 years.
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, much like Uber, Google, and Facebook did. These small firms will 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.
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These private companies are working on technologies that will allow us to alter our genes. This could eradicate many diseases and birth defects. They are also working on technology that will make self-driving cars a common sight in just five years.
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.
Here’s why…
The system for financing technology companies and taking them public has completely changed in the last five years.
Back in the late 1990s or early 2000s, 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 farther 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 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 as 2014. This indicates 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 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 by these entities went through the roof:
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By a factor of 15 for hedge funds
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By a factor of 11 for mutual funds
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By a factor of 30 for family offices
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By a factor of 8 for asset management firms.
In fact, by September 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.
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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 they tend to gravitate toward a smaller number of larger deals.
This explains financing deals like Uber’s $1.2 billion in August 2015. 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.
You see, this change in the financing of private technology companies has caused the entire technology IPO market to dry up over the last few years.
Great technology companies have been able to raise private capital in the hundreds of millions or even billions. They have been able to raise the growth capital privately without having to access the public markets.
The chart below shows just how much the IPO market for technology companies has slowed down.
In 2015 there were only 24 technology IPOs in the year, which represented just 14% of the total IPOs for the entire year. These are the lowest levels seen since the financial crisis of 2008-2009. Pre-crisis in 2007, there were 60 technology IPOs responsible for 28% of total funds raised in the public markets.
And herein lies the opportunity.
This dynamic has caused a huge backlog of some of the greatest technology companies in history just waiting to go public.
Think of it like a massive bottleneck or a dam that’s ready to explode.
Venture capital investors, investment banks, hedge funds, and institutional investors invest in these private technology companies for only one reason: to make gigantic profits 50 times… 100 times… or even 200 times their money.
They are willing to be patient… to a point.
Eventually, the investors expect—better yet, demand—an exit.
Exits sometimes come in the form of an acquisition by another technology company. But the really massive gains come from taking these companies public via an IPO.
And normal retail investors are about to have a chance to invest in these next-generation technology companies.
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In fact, we already had a big winner in Exponential Tech Investor in one of the first IPOs of the year: Editas Medicine.
Editas Medicine is a revolutionary technology company developing a technology platform for genetic editing. It has the ability to cure thousands of genetic diseases that previously had no cure or treatment. In less than 30 trading days, the stock had already risen more than 150% of its original IPO price of $16.
Editas Medicine is only the first of many that will go public over the next two years. As the “dam” breaks, these companies will access the public markets, raise billions of dollars, make fortunes for investors, and replace slow, outdated companies on the S&P 500 index.
I hope you’re prepared. We have a chance to own the future. Let’s take it.
Reeves’ Note: In his free online training series, Jeff revealed his three rules for finding hyper-growth tech stocks. Following them is the best way to safeguard against the coming “blue-chip bloodbath.” Jeff predicts it’s likely to send many of the safest “blue-chip” stocks spiraling into bankruptcy—or massive 50-70% losses—in the next five years…
Learn more about Jeff’s brilliant wealth-building program right here. (But act quick… this offer may end as early as midnight tonight.)