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It’s Just a Question of Whose Capital Will Be Destroyed

It’s Just a Question of Whose Capital Will Be Destroyed

The amount of money investors have plowed into startups has reached record highs. In 2014, investors of all kinds, from angels and VCs to big asset managers, invested $48.35 billion in startups, “only” the third highest year on record, but the highest since the crazy bubble years 1999 and 2000 when investors blew $55 billion and $105 billion respectively, even as the dot-com bubble was already imploding. Investors at the time were just a little slow in giving up hope.

But the “valuations” are getting crazy. The price at which new investors buy into a startup during a round of funding determines the “valuation.” As investors have become more eager with other people’s money, and as hedge funds and big asset managers have jumped into the fray in late-stage rounds, they have sent valuations on vertigo-inducing trajectories.

Slack, one of the innumerable startups that over the years have claimed to have found the successor to corporate email, just inked a new deal with investors for $160 million in funding that jacks up its valuation to $2.76 billion. The round is expected to close over the next few weeks. “People familiar with the matter” purposefully leaked this to the Wall Street Journal as part of the mega-hype that the startup scene needs in order to attract ever more money.

Slack launched its app only about a year ago. At the time, it wasn’t even in the Billion Dollar Startup Club, that ever growing group of startups with valuations over $1 billion. But in October, it raised some money at a valuation of $1.12 billion. And five months later, its valuation jumped 146%.

 

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