Network Effect Drives Demand for Tech IPOs such as Sat One, Says CMI (AU)

Sat One, an Australian technology company based in Perth, will sell OneWeb’s communications services in Australia.

CMI (AU) say investors are willing to pay a premium for companies with the potential to build large and valuable networks.

We all like to believe that fundamentals are the main drivers to accurately assess the value of a company, but in reality, that is not how new tech companies such as Sat One are being valued.”

— Eric Axel

PERTH, WESTERN AUSTRALIA, AUSTRALIA, September 7, 2023/EINPresswire.com/ — Capital Managed Investments (AU) (CMI), entrusted managers of the burgeoning E-volution Fund, cite the impact of the network effect on the demand for tech Initial Public Offerings (IPOs). Eric Axel and his team claim that the network effect is a major driver of demand for tech IPOs, particularly for new and unproven companies.

The network effect is a phenomenon whereby the value of a product or service increases with the number of users. In the case of tech IPOs, the network effect refers to the value of a company’s platform or network of users. The more users a company has, the more valuable its platform becomes and the greater the demand for its IPO.

According to renowned macroguru Raoul Pal, network effects are the driving force behind the crypto space’s explosive growth. Pal explains how understanding the surge in interest in cryptocurrency markets can be improved by recognising the power of network effects. This concept, known as Reed’s Law, states that the more users and participants a system has, the more valuable its offerings become.

“It’s astonishing, the network effect. And we’re bringing in the institutions, and they’re spreading into Ethereum, and everyone else is building products”. Raoul Pal observed that the exponential growth of cryptocurrency was “coming at us at lightning speed, and I do not think the space can catch up with the narrative change that is happening so fast”.

According to CMI (AU), the network effect is especially strong in the case of new, unproven tech companies. These companies often have little or no revenue or profits but are valued highly by investors due to the potential for their platforms to grow rapidly, also known as hype.

CMI (AU) CEO Axel said, “It is in the simplicity, but also, more importantly, in the hype! Yes, we all like to believe that fundamentals are and should be the main drivers to accurately assess the value of a company, but in reality, that is not how new tech companies such as Sat One are being valued.”

For example, Sat One, a satellite communications company that recently went public, is still in its early stages of development, but it has generated a lot of hype and interest from investors. The company’s IPO was 100 times oversubscribed, and its shares more than doubled on the first day of trading. This, as an example, could be the network effect in action.

CMI (AU) concludes that hype is a powerful force driving demand for tech IPOs. Investors are willing to pay a premium for companies with the potential to build large and valuable networks. This trend is likely to continue in the years to come as more and more tech companies go public.

“The network effect is a major driver of demand for tech IPOs,” said Eric Axel, CIO of CMI (AU). “Investors are willing to pay a premium for companies with the potential to create large and valuable networks.”

For more information, please visit the CMI (AU) website at https://cmi-au.com/.

Investors interested in learning more about the network effect’s impact on tech IPO valuations should contact a CMI (AU) advisor: invest@cmi-au.com

Disclaimer: Investors should carefully consider the risks before investing in tech IPOs that are driven by hype. These risks include the possibility that the company may not be able to achieve its growth goals or that the network effect may not be as strong as anticipated.

Eric Axel
CMI (AU)
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