Tech Community Warned on Valuations

Dave Michaels and Telis Demos reported in Saturday’s Wall Street Journal that, “The chairman of the Securities and Exchange Commission fired a warning shot at Silicon Valley, cautioning the tech community against playing fast and loose with valuations and urging it to channel more information to investors devouring its latest innovations such as online loans.

“Speaking Thursday at Stanford University, a cradle of high-tech invention, Mary Jo White called on richly valued private firms to behave more like public companies that must use a web of checks and balances to guard against misleading investors about their value or performance.”

The Journal article indicated that, “Ms. White singled out so-called unicorns, startups valued at more than $1 billion, questioning whether their worth has been inflated by ‘the publicity and pressure to meet the unicorn benchmark.’

“‘Nearly all venture valuations are highly subjective,’ Ms. White told the audience at Stanford’s Rock Center for Corporate Governance. ‘But one must wonder whether the publicity and pressure to achieve the unicorn benchmark is analogous to that felt by public companies to meet projections they make to the market.'”

The Journal writers added that, “Ms. White also said the SEC is closely monitoring financial technology, or fintech, an area that includes startups such as Prosper Marketplace Inc. and LendingClub Corp., which make online loans to consumers and small businesses and then sell the debt to individual investors and hedge funds. She called on such platforms to provide more information about the loans, including data on the borrower’s ability to repay.”

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