SEC Suspicious Of Tech Companies’ Plunging Valuations Post-IPO

Tech upstarts like Box and Etsy saw a steep decline in valuation after going public last year—and regulators want to understand why.

SEC Suspicious Of Tech Companies’ Plunging Valuations Post-IPO
[Photo: Flickr user Charles & Hudson]

A number of tech companies with sky-high valuations prior to going public last year—Box, Square, and Etsy, to name a few—have since seen their worth drop significantly. The Securities and Exchange Commission (SEC) thinks the stockbrokers who advise investors may be to blame, according to Bloomberg.

Chairwoman Mary Jo White said on Tuesday that a “significant” change in the value of a tech startup post-IPO begs the question of whether investors were misled by stockbrokers. “You have to make sure you don’t have some very aggressive promoters taking advantage of that climate,” she told Bloomberg. At a time when every startup worth upwards of $1 billion is touted as a “unicorn,” this is doubly important, especially if the investors being courted don’t have the know-how of venture capitalists.

Those type of investors “may get very excited from an article or a blog and invest their money,” White said at a securities conference this week. “You worry about them not getting sufficient or accurate information.”

A number of hyped startups have recently fallen prey to sinking valuations. Square, led by Twitter CEO Jack Dorsey, boasted a valuation of about $6 billion prior to its IPO last November. By the time the payments company went public, that number had dropped to a little over $4 billion, and a few months later, it is idling at about $3 billion. Box’s IPO valuation of $2.8 billion has similarly been more than halved in the past year; Etsy, whose stock price jumped to $32 during its IPO, is now selling shares at just over $7 a pop.

[via Bloomberg]

About the author

Pavithra Mohan is an assistant editor for Fast Company Digital. Her writing has previously been featured in Gizmodo and Popular Science magazine.