Tech start-ups reach new peak of froth

More than 900 tech start-ups are each worth more than US$1 billion (S$1.35 billion). PHOTO: NYTIMES

NEW YORK (NYTIMES) - How crazy is the money sloshing around in start-up land right now?

It is so crazy that more than 900 tech start-ups are each worth more than US$1 billion (S$1.35 billion). In 2015, 80 seemed like a lot.

It is so crazy that hot start-ups no longer have to pitch investors for money. The investors are the ones pitching them.

It is so crazy that founders can start raising money on a Friday afternoon and have a deal closed by Sunday night.

The funding frenzy follows nearly two years of a pandemic when people and businesses increasingly relied on tech, creating bottomless opportunities for start-ups to exploit. It follows breakthroughs in artificial intelligence, nuclear technology, electric vehicles, space travel and other areas that investors say are poised to change the world. And it follows nearly a decade in which tech companies have dominated the stock market.

The activity has crossed into even frothier territory in recent months as tech start-ups offering food delivery, remote work software and telehealth services realised that they not only would survive the pandemic but also were in higher demand than ever. The money hit a fever pitch in the final months of 2021 as investors chased a limited pool of start-ups and as tech stocks like Apple, which topped a valuation of US$3 trillion, reached new heights.

The result is a booming ecosystem of highly valued, cash-rich start-ups in Silicon Valley and beyond that are expanding at breakneck speed and trying to unseat stalwart companies in all kinds of fields. Few in the industry see a limit to the growth.

"The pot of gold at the end of the rainbow has become bigger than ever," said Mr Mike Ghaffary, an investor at Canvas Ventures. "You can invest in a company that could one day be a trillion-dollar company."

Astonishing data for 2021 tells the story:

• US start-ups raised US$330 billion, nearly double 2020's record haul of US$167 billion, according to PitchBook, which tracks private financing.

• More tech start-ups crossed the US$1 billion valuation threshold than in the previous five years combined.

• The median amount of money raised for very young start-ups taking on their first major round of funding grew 30 per cent, according to Crunchbase.

• The value of start-up exits - a sale or public offering - spiked to US$774 billion, nearly tripling the prior year's returns, according to PitchBook.

The big-money headlines have carried into this year. Over a few days this month, three private start-ups hit eye-popping valuations: Miro, a digital whiteboard company, was valued at US$17.75 billion; Checkout.com, a payments company, was valued at US$40 billion; and OpenSea, a 90-person start-up that lets people buy and sell non-fungible tokens, or NFTs, was valued at US$13.3 billion.

Investors announced big hauls too. Venture capital firm Andreessen Horowitz said it had raised US$9 billion in new funds. Khosla Ventures and Kleiner Perkins, two other venture firms, each raised nearly US$2 billion.

The good times have been so good that warnings of a pullback inevitably bubble up. Rising interest rates, expected later this year, and uncertainty over the Omicron variant have deflated tech stock prices. Shares of start-ups that went public through special purpose acquisition companies last year have slumped. One of the first start-up initial public offerings expected this year was postponed by Justworks, a provider of human resources software, which cited market conditions. The price of Bitcoin has sunk nearly 40 per cent since its peak in November.

But start-up investors said that had not yet affected funding for private companies.

"I don't know if I've ever seen a more competitive market," said Mr Ambar Bhattacharyya, an investor at Maverick Ventures.

Even if things slow down momentarily, investors said, the big picture looks the same. Past moments of outrageous deal-making - from Facebook's acquisitions of Instagram and WhatsApp to the soaring private market valuations of start-ups like Uber and WeWork - have prompted heated debates about a tech bubble for the last decade. 

Mr Roy Bahat, an investor with Bloomberg Beta, the start-up investment arm of Bloomberg, said that each time, he thought the frenzy would eventually return to normal.

Instead, he said, "every single time, it has become the new normal".

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