Tech Startups’ Post-IPO Slumps Spark SEC Scrutiny

The valuations that had been the hallmark of high-flying tech companies are now under the microscope of regulators in the United States.

Bloomberg reported on Wednesday (Jan. 27) that the Securities and Exchange Commission’s chairwoman, Mary Jo White, has stated that some on Wall Street, including brokers, have been putting forth a “too rosy” sense of how private tech companies are doing and what their prospects might be. In addition, said the commissioner, there is a disconnect between the private valuations of the tech companies and the valuations that are assigned by the public investors once an initial public offering takes place. White was quoted by the newswire after speaking at a securities conference in California.

“You have to make sure you don’t have some very aggressive promoters taking advantage of that climate,” she said in the interview.

And yet, as Bloomberg noted, the caution comes even as investors are looking to put more money to work in Silicon Valley. The disconnect may be coming as the tech startups do not have to disclose all that much information about their financial situations, and the investors, in turn, are not necessarily experienced or well-versed in how to value those companies. White said a key concern rests with whether there is enough information out there to make informed decisions. The SEC has also been investigating whether brokers and shareholders selling large holdings in private companies may be violating securities laws through what have been billed as marketplaces for unlisted shares.

[bctt tweet=”Investors, in turn, are not necessarily experienced or well-versed in how to value those companies.”]

The newswire posed as an example the much documented collapse of Square shares late last year, where the company now has a market cap of about $3.2 billion, much less than the $6 billion commanded in the private market.