Key Takeaways

  • Data insights by Silicon Valley Bank indicate that addressing currency risk may help support profitability at high-growth technology firms.
  • S-1 filings suggest that firms preparing for IPOs had significant exposure to currencies, but had much less visibility into the materiality of their FX risk than they should have based their size and global footprints.
  • Follow-up research examined post-IPO companies. We found that, as a group, small-cap public US tech companies that hedged FX risk with derivatives performed better on key profitability metrics than those that did not.

Click here to view the full report page.

Pre-IPO tech firms' FX exposure

Technology companies are not only waiting longer to go public, but also approaching IPOs with larger and more mature businesses than before. In many cases, by the time these companies file they have substantial overseas revenues and correspondingly large currency exposures.

Nine in 10 of them reported global revenues. The companies under review generated 34% of revenues outside the United States, on
average — nearly as high as the average percentage of international revenues at S&P 500 companies.  

pre-ipo tech firms' fx exposure

FX exposure growing fast

IPO filings consistently reported that pre-IPO tech firms' international revenues were growing much quicker than US revenues. Although international growth comes off a lower base and could slow in future years, tech firms' global currency exposure seems likely to increase in the years to come.

fx exposure growing fast

Little visibility into FX exposure

Generating substantial and increasing revenues outside the United States exposes these pre-IPO tech firms to considerable foreign currency risk. They know this: 90% of the firms reviewed identified FX as a risk factor in section 1A of their IPO filings. 

But knowing the risk exists is not the same as understanding its impact on profits, which is the essential first step toward managing FX risk. To learn whether these firms had visibility into the ways currency risk affected their bottom line, we examined whether they broke out currency impact on their income statements. Very few did, suggesting that many pre-IPO tech firms have little visibility into an important risk that could affect profits.

little visibility into fx exposure

Revenues in USD, costs in foreign currency

We examined whether the firms under review were taking steps to manage their FX risk. We found that many firms price their overseas goods and services in US dollars. That practice serves as a natural hedge to the currency risk associated with those revenues, but it tends to become more difficult as companies scale. Moreover, the vast majority of costs (84%) came in local currencies. 

revenues in usd, costs in foreign currency

Most do not hedge with derivatives (yet)

Large firms commonly use derivatives2 to hedge currency risk. That practice was relatively rare among tech companies filing for IPOs between 2016 and 2019: One in 10 companies overall hedged FX risk using derivatives, including one in six among firms that reported non-US dollar revenues. About half hedged with other approaches, such as: 

  • holding foreign currency through a subsidiary

  • exploiting natural hedging alternatives

  • billing and collecting in USD rather than foreign currency

most do not hedge with derivatives (yet)

Follow-up study: FX practices at the next stage of the business lifecycle 

Should pre-IPO firms take a more intentional and active approach to their FX exposure? We sought insights that could help answer that question by examining tech companies at the next stage of the business lifecycle: publicly traded small-cap US technology firms, represented by the Dow Jones US Small-Capitalization Technology index (Bloomberg ticket: DJUSSTH). 

These companies' degree of FX exposure was strikingly similar to that of the pre-IPO firms we reviewed:

  • 86% of these small public companies had global revenues, versus 90% at the pre-IPO companies reviewed

  • small public tech companies generated 38% from foreign countries, on average, compared to 34% for pre-IPO tech firms

follow-up study: fx practices at the next stage of the business lifecycle

Post-IPO firms 4x more likely to hedge with derivatives

We separated the companies in the small-cap tech index into two buckets: those that hedge FX using derivatives and those that do not. Nearly 40% of the companies in this small-cap technology index hedge using derivatives - four times the rate among the pre-IPO companies in our initial study.

Given that post-IPO firms do not have significantly more FX exposure that pre-IPO firms, their greater use of derivatives to hedge currency impacts may reflect not a response to the size of their exposure, but rather a step in the corporate maturation process.

post-ipo firms 4x more likely to hedge with derivatives

More profitable firms tend to hedge with derivatives

We compared the profitability of companies that hedge with derivatives with those that do not. Specifically, we examined several key metrics related to EBITDA (earnings before interest, taxes, depreciation and amortization), a useful tool for gauging core profitability. Companies that hedged currencies using derivatives performed significantly better on a variety of EBITDA measures.

The data do not show a casual relationship between hedging currency risk with derivatives and greater profitability. However, at a minimum, these findings suggest a link between hedging currencies with derivatives and greater, more reliable profitability for small cap technology companies. 

An important note is that our statistical bias testing established that size alone does not fully explain why companies that hedge using derivatives are outperforming competitors. 

more profitable firms tend to hedge with derivatives

Pre-IPO tech firms' FX exposure

Today, profits are paramount. As high-growth companies navigate the current environment and plan for the future, they might consider emulating the practices of the most successful and profitable companies at the next stage of the lifecycle. A conscious, intentional approach to understanding and managing FX risk is one of those practices.

A trusted partner can guide high-growth firms through a methodical process to gauge and address FX impact:

  • Establish a framework for identifying and quantifying the impact of FX movements on important business metrics.

  • Determine how material the risk has been to financial results and how material it may be in the future.

  • Employ natural hedging strategies.

  • Where appropriate, mitigate currency impacts through the use of derivatives.

  • Document frameworks, analyses and actions in an FX hedging policy.

  • Adapt FX management over time.

If you’d like to discuss your specific situation or more details of this study, contact the author, Ivan Oscar Asensio, Head of FX Risk Advisory, at or your SVB FX Advisor.

Ivan Asensio Headshot
Written by
Ivan Asensio
FX Risk Advisory for Corporates

Actionable risk management guidance and hedging strategy ideas for your international business.
More on this topic

Editor's Top Picks
Read this next

Webcast: Grow global with SVB

Join us to hear from experts about dealing with business challenges outside the US.
Read more

This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources.

Opinions expressed are our opinions as of the date of this content only. The material is based upon information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. The views expressed are solely those of the author and do not necessarily reflect the views of SVB Financial Group, Silicon Valley Bank, or any of its affiliates.

Subscribe to receive the Daily FX Update in your inbox.

By providing your email address and clicking on the Subscribe button below, you consent to receive emails from Silicon Valley Bank for your chosen categories. You also consent to the terms of our Privacy Notice. If you have privacy questions, you may contact us at You can withdraw your consent at any time.

Insights from SVB Industry Experts

SVB experts provide our customers with industry insights, proprietary research and insightful content. Check out these related articles that may be of interest to you.

Webcast: Peer Insights on FX Management for Healthcare Companies


How 2020 accelerated currency trends and what’s ahead


FX Risk Advisory: Benchmark Survey Report for Life Science & Healthcare companies


Use FX budget rates to improve global FP&A


Data Insights: Non-Traditional datasets for currency


Executive Summary: Data Insights - Currency Management