A Deflating Technology Bubble

 |  Includes: IGM, IYW, MTK, XLK
by: 451 Research: Inorganic Growth

By Brenon Daly

If, as some observers suspect, the valuations for tech startups are overinflated, then at least a bit of air is expected to leak out of the bubble. According to our recent survey of corporate development executives, two-thirds of the respondents indicated that they expect valuations for private companies to decline through the rest of the year. The 65% who predicted a slide in the exit prices for startups is more than five times higher than the 12% who projected that valuations would tick higher. (The question about startup valuations was part of a larger survey about M&A expectations for the rest of 2011. See our full report on the survey.)

Interestingly, the mid-2011 outlook is almost exactly the inverse of what corporate development executives told us at the beginning of the year. In our previous survey, 71% forecasted higher M&A valuations for startups this year, compared to just 9% who saw a decline. In fact, the only time the sentiment from our mid-2011 survey even loosely lines up is back in the 2009 survey, which was conducted at the depth of the Great Recession. At that time, nearly nine out of 10 respondents projected that private company M&A valuations in that year would decline, compared to just 5% who predicted an uptick.

Projected change in private company valuations

Period Increase Stay the same Decrease
Mid-2011 for remainder of year 12% 23% 65%
December 2010 for 2011 71% 20% 9%
December 2009 for 2010 58% 36% 6%
December 2008 for 2009 4% 9% 87%
December 2007 for 2008 39% 28% 33%
Click to enlarge
Click to enlarge

Source: The 451 Group Tech Corporate Development Outlook Survey