Venture capitalists are flush and looking for deals among U.S. startups.
Nontraditional investors like hedge funds and sovereign-wealth funds are competing for equity in startup companies, and that’s helping spur the market, The Financial Times reported.
“For the best companies, the money spigot is wide open,” Mark Goldberg, a San Francisco-based partner at Index Ventures, told the FT. He said that funding rounds larger than $100 million typically are receiving twice as much money from investors than the companies are willing to accept.
The Prime Unicorn Index, which tracks the valuations of privately held startup companies’ valued at $500 million or more, had a 58% return in 2019, the best performance in five years, according to its fourth-quarter report. The index was created in 2017 but the historical returns have been calculated to gauge performance.
Examples of companies being showered with venture-capital funds include Chime, a U.S. digital bank, which was offered $1.8 billion from investors when it was seeking to raise $500 million in December, the FT said, citing an unidentified person with direct knowledge of the process. The company’s valuation had already quadrupled in nine months.
“For the best companies, the money spigot is wide open.”
Another is analytics company Databricks, whose CEO Ali Ghodsi, told the newspaper he received $900 million in investor interest in October before accepting $400 million. Investors more than doubled its agreed valuation in less than a year, to $6.2 billion, the FT said.
- Pitchbook data from September show that nontraditional venture-capital investors participated in $43.5 billion in financing in 2018 and were on track to increase that amount in 2019.
- The surge in venture-capital funding comes despite disappointments last year in high-profile startups including Uber and WeWork. Both companies remain unprofitable.
- SoftBank in November tightened the reins on startup founders after taking huge losses from WeWork.
- Female founders are likely to receive more venture capital funding in the 2020s, surpassing a record set in 2019, Forbes reported last week.