Raising Money and Valuations in Silicon Valley

April is certainly been a busy month for startups and investors. As you know investments are no longer in the $10-15 million category, they appear to be in the $70-100 million category with valuations pegged in billions of dollars. Here is a sample of companies that raised fund in the last few days.

Docker, an open source platform company announced it raised $95 million. Illumio, a security company raised $100 million, while Sprig, a delivery company raised $45 million. LendingHome, a mortgage lending startup raised $70 million. It is not just hardware and software companies raising money, but also companies like Eaze, an online medical  marijuana delivery startup. Eaze raised $10 million in its series A. What is interesting is that SnoopDog, the rap singer was part of this investment fund through his company Casa Verde Capital

It is not just startups and companies raising money, but also venture capital firms. NEA is raising the largest VC fund $2.4 billion  and $350 million side fund for investing in later-stage  portfolio companies according to Dan Primack, who broke the news. Menlo Ventures raised $400 million to invest in tech startups.

Naturally when you read about the amount of money raised and the valuation of these companies, especially those in the Unicorn category you begin to wonder if we are in the middle of a bubble and if that bubble is about to burst?  The murmur about when this bubble will burst appears to have grown louder. Many of these companies may turn out to be dead unicorns says Bill Gurley of Benchmark Capital. Here is how he described it in his blog post in February 2015.

We are in a risk bubble. Companies are taking on huge burn rates to justify spending the capital they are raising in these enormous financings, putting their long-term viability in jeopardy.

Setback is the term Sir Michael Moritz of Sequoia Capital used to describe the current state of affairs in an interview with the The Times (subscription link). ““Several years ago the atmosphere wasn’t as euphoric as it is today. Even the zaniest ideas can attract money,” Moritz says.

Not everybody is on this tech bubble boat. Take Dave McClure of 500 Startups, a seed fund and an accelerator based in Mountain View. In his recent article with an irreverent and saucy title “Bubble, My Ass: Some Unicorns Might Be Overvalued, But All Dinosaurs Gonna Die,” McClure points out public companies are over valued and fail to innovate and writes:

 almost every Dinosaur Company is extremely vulnerable to a Startup Unicorn eating their lunch (stated so eloquently this past week by none other than JP Morgan Chase CEO Jamie Dimon).

So, who is to blame for the current state of valuations? Is Marc Andreessen of Andreessen Horowitz to blame ? That was the question Primack of Fortune asked Andressen last week in San Francisco. Here is what Andreessen responded:

I can only quote the great thinkers, James Franco and Seth Rogen in The Interview: I believe they were simply peanut butter and jealous. So — in all seriousness, I actually think we weren’t overpaying. 

You can read rest of the interview with Andreessen here.

Did HBO’s Silicon Valley nail the current mood and trend in Silicon Valley in Episode One from season two that aired this past Sunday? It certainly looked like it. Mike Judge and his team brilliantly capture all those unanswered questions in your mind about how does this whole thing work? Yes, I know it is a TV show, but you do get an idea of this whole cycle of raising money and valuations.

 

 

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