The smart money now seeking pre-IPO investments in tech start-ups

Lean technology start-ups – without the baggage of labour-intensive production lines – have become the favoured target of investment firms seeking to buy their way into a growth trajectory that captures wealth well before a public listing.

Paul Chan, a portfolio manager at Invesco, is among the ranks of fund managers who increasingly see the main game as getting in early with high-growth prospect start-ups, rather than waiting on their turn at the table with initial public offerings.

Chan cites Uber Technologies, the US-based developer of a software application for booking taxis that is penetrating markets worldwide and helping to stoke investor enthusiasm for tech start-ups.

“Hon Hai Precision, the Taiwanese contract manufacturer better known as Foxconn, employs 1.3 million workers, which is equivalent to the size of active personnel in the US army,” the veteran stock investor said of the company that assembles Apple’s iPhones and iPads. “But the market value of publicly listed Hon Hai is less than Uber, reflecting investors’ preference for fast-growing private technology firms that can create disruptive innovation.”

Uber said in December that it had raised funding that valued the company at US$40 billion, vaulting it over the likes of established technology companies such as Sony and Lenovo, which have market capitalisations of US$21 billion and US$16 billion, respectively.

That valuation has propelled the app maker, in which China’s dominant search engine Baidu has an undisclosed stake, into the upper ranks of technology heavyweights in terms of market worth.