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Tech Investors Create a Billion-Dollar-Baby Boom


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Excerpt:

 

"What a difference a year makes.

Less than 12 months after investors valued Snapchat, the red-hot messaging app, at about $10 billion, the start-up is again in the market for money — and poised to nearly double that valuation.

 

A range of other popular start-ups are also poised to propel their net worths to similar multibillion-dollar heights, including the virtual scrapbooking service Pinterest and the ride-hailing app Lyft. Uber, Lyft’s top competitor, has raised more than $3 billion in the last year and now has an eye-popping valuation of $40 billion.

 

Giant sums of money and sky-high valuations are nothing new in the technology industry. But the latest burst of activity has put on clear display the frenzied pace of investors, who are eager to catch the next blockbuster company like Facebook. The action is also again spurring talk that overeager investors are poised to relive the dot-com boom and bust at the turn of the century, when overinflated start-ups led to a quick and painful downturn.

 

For investors, the hunt is for the next so-called unicorn, a nascent business worth $1 billion or more — on paper, at least.

 

The size of investments has clearly picked up. About $48.3 billion was invested in 2014, up 61 percent from the same time the previous year, according to a report by the National Venture Capital Association and PricewaterhouseCoopers. But that money went into 4,356 deals, up only 4 percent, suggesting that more of that capital is going into fewer — and bigger — rounds.

 

Investors have been eager to raise even more money to pour into start-ups. Dedicated venture capital firms raised nearly $30 billion last year, a level untouched since 2007, according to Thomson Reuters.

 

Much of the money that has helped inflate the latest rounds of financing has come from mutual fund giants like BlackRock, Fidelity and T. Rowe Price, known for years for buying shares in start-ups once they go public. But lately the mutual fund companies have been big investors in start-ups like Uber, looking to tap into phenomenal growth.

 

Executives at these mutual funds say that they had long sought to move into the world of venture capital. But they really gained access in recent years as the size of the investments in start-ups grew into the tens of millions of dollars or more — enough to meaningfully affect their investment returns.

Part of what drives the bigger investments, investors say, is the advent of today’s technology — high-speed Internet connections, the ubiquity of smartphones, modern social networks — that has made it possible for start-ups to become nearly overnight sensations, moving much faster than they would have 15 years ago."

 

Much more in the article here: http://www.nytimes.com/2015/02/20/business/investors-create-a-billion-dollar-baby-boom.html?emc=edit_tu_20150220&nl=technology&nlid=36852580&_r=0

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