What is a Tech Company?

Technology surrounds us and is part of our daily lives, and it may be fair to say that technology is critical to almost every business. At the same time, investors view a subset of enterprises as “tech companies” while others aren’t considered as tech. 

Recognizing that there is no single definition for what constitutes a tech company, thoughtful investors may want to take a look under the hood as they evaluate where and how to invest.

While a handful of large public and private market companies dominate what many may consider a tech company, the range of technology-oriented companies is large and quite diverse.

For example, venture capitalists invested in nearly 4,000 software or hardware companies in 2018 across a range of deal sizes.

How Indexes Define Tech Companies

One way to think about technology firms is to evaluate how indexes, representing billions of dollars of invested assets, define the space.

As a starting point, many investors think of the NASDAQ 100 index as a broad measure of the technology sector. 

Using the $64 billion QQQ Exchange Traded Fund (ETF) as a proxy — given it tracks the Nasdaq 100 — it is indeed tech-heavy with 42 percent of its holdings by assets in the information technology sector, including holdings in Microsoft, Apple, and Intel.  

That said, the QQQ also holds firms like Pepsi and Starbucks, which may not fit many people’s definition of being a technology company. Yet, both firms have stated that technology is critical to their businesses. 

Pepsi, in a February 2019 presentation to analysts, laid out their focus on “capabilities, enabled by technology” ranging from “consumer intimacy” to “end-to-end supply chain agility.” 

In a December 2018 press release outlining its growth agenda, Starbucks focused on initiatives ranging from “deploying technology to automate inventory planning and replenishment” to “accelerating growth in China through new digital initiatives.”

Drilling down further, the largest technology sector-oriented ETF (the $19 billion index based Technology Select Spider [XLK]) holds 68 technology-oriented publicly traded firms.

While the top two holdings by assets — Microsoft and Apple — might top many investors list of tech firms, no.3 Visa and no.6 Mastercard may not be included in that same list. 

With that in mind, Visa has invested significantly over the years to build a global technology platform that enabled close to 50 billion transactions in the last quarter.

Technology Drives Innovation

Certainly, technology has changed how business and consumers engage across a range of industries and many of these innovation-oriented companies — a combination of both public and private firms — each carries a multi-billion dollar valuation. 

At Forge, we’ve witnessed many of these leading innovation companies stay private longer given the availability of capital and the regulatory environment for public companies. 

In addition to well-known startups like Airbnb, Pinterest and Uber, lesser-known companies like Niantic, Rubrik and Samsara are leveraging technology to develop new markets. And as private markets drive innovation, these B2B-oriented firms, like their B2C brethren, will create new user experiences and insights.

Learn more about Forge’s ability to connect investors to late-stage, pre-IPO companies.