Folly of private company valuations
Another fund raising looms for Freetrade, the share-dealing mobile app. The seemingly ludicrous valuation of this unproven business highlights to us the issues with many private company valuations, fuelled by irresponsible VCs. This is a real shame for a business which encourages direct equity investing. Read on here for our thoughts.
News that Financial Conduct Authority is preparing to launch a review of valuations in private markets is long overdue in our opinion, with the fund raising journey of Freetrade highlighting the issues. It’s wonderful to see innovative businesses like Freetrade receive funding, although the notion of commission free trading doesn’t necessarily sit well with us. However, more importantly, we struggle to understand the logic of valuations afforded to many such businesses, especially when Venture Capital (‘VC’) backers get involved. Furthermore, it’s often the retail investor base which ultimately bears the brunt of the valuation folly. With the era of cheap money over, a…