28 February 2024

Startup Values Set Records

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Chinese smartphone maker Xiaomi Corp. is now officially the world’s most valuable tech startup, worth $46 billion—the exclamation point on a year of extraordinary valuations. Valuations placed on tech startups world-wide stretched to record heights in 2014 and accelerated at an exceptional pace, even when compared with the late 1990s dot-com boom.

Xiaomi is just the latest example. On Monday it raised more than $1 billion from investors, giving it the $46 billion overall valuation. Only Facebook Inc. raised capital at a higher value from private investors, at $50 billion in 2011. This year, venture capitalists, mutual funds and big banks bestowed valuations of $1 billion or more on about 40 startups world-wide, doubling the number of such companies at the start of the year, according to research firm Dow Jones VentureSource.

Adjusted for inflation, the current roster of 70 “billion dollar” startups globally is nearly twice as large as the number during the boom years 1999 and 2000. In short, 2014 was the year the tech sector went into hyper-drive.

Before this year, only Facebook and Chinese online retailer JD.com Inc. commanded a valuation higher than $10 billion among private companies backed by venture capitalists, according to VentureSource. This year, six startups raised capital at that level or higher.

The prevailing theory behind the investment rush: Technology is overtaking nearly every major industry, from city transportation and hospitality to education and health care. And real businesses are being built, bullish backers say, not the revenue-less startups from those heady dot-com days in the late 1990s, when excitement over the Internet led to a tech-stock bubble that burst in early 2000.

Many of the companies in today’s billion-dollar club, such as Uber, Xiaomi, home-rental site Airbnb Inc., Web storage company Dropbox Inc. and data-mining startup Palantir Inc. are said to be generating tens if not hundreds of millions of dollars annually.

Airbnb, which is seeking to upend the hotel industry, was tagged with a $10 billion valuation in April, about 40 times its revenue of roughly $250 million in 2013. That revenue had doubled from the previous year, people familiar with the matter previously told The Wall Street Journal. Dropbox, also with a $10 billion valuation, had expected sales of more than $200 million in 2013, up from $116 million the year earlier.

Other companies, like messaging service Snapchat Inc. and online scrapbooking site Pinterest Inc., have barely started making money. Investors are betting those companies can capture audiences that will eventually translate into big money, à la Facebook.

Billionaire venture capitalist Peter Thiel, an early investor in Facebook, says on balance the field of startups doesn’t feel overvalued. The sum of billion-dollar-plus valuations in the U.S.—at roughly $160 billion—would still be less than half of Google Inc.’s $365 billion market cap.

Click here to access the full article on The Wall Street Journal. 

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