startupsWorld News

Global start-up funding frenzy fuels fears of a bubble just like 1999

Bibliometric Details: Issue No: 7 | Issue Month:July | Issue Year:2021
Story Highlights
  • Experts have presented a case study of a 90 year-old woman in Belgium who was simultaneously infected with both the alpha and beta strains of Covid-19.
  • Fast forward to July 2021, and tech investors are writing bigger checks than ever before.

In March of last year a leading venture capital firm called Covid-19 the black swan of 2020. Private financing has weakened since the events of 2001 and 2009, the company told the founders and CEOs of portfolio companies in a memo reminiscent of its rip-offs.

The best time for such a presentation would have been before the 2008 crisis. Fast forward to July 2021 and tech investors are writing bigger checks than ever before. Start-ups have raised $29.24 billion so far this year, according to CB Insights, and are on track to surpass the $30.26 billion raised in 2020. The number of so-called “mega-rounds” – huge venture capital deals worth $100 million – has increased by 751% in 2021 to date, surpassing the 665 mega-rounds raised last year.

“This feels a lot like 1999 to me,” he told CNBC. ‘You’ve got so much stock and so much enthusiasm. So much enthusiasm for the next big thing. This is the time when you put a dotcom next to your name on the stock market and everything goes up, “he added.Dotcom companies were the talk of Wall Street in the late 1990s amid the rise of the Internet. Speculative investments led to a 400% increase in the NASDAQ Composite stock index between 1995 and 2000.It plummeted 80% from its peak in October 2002. In the last five years, the Nasdaq’s market value has tripled, and several major technology stocks, including Amazon, Google, and Facebook, have surpassed the $1 trillion mark. Microsoft and Apple are now worth more than $2 trillion.

Investors are also concerned about soaring valuations of private technology companies. According to CB Insights, 249 companies generated $1 billion in unicorn valuations in the first half of 2021, double last year’s total. Stripe is valued at a staggering $9.5 billion in March by the US payments processor Stripe, illustrating a growing trend for start-ups to stay private for longer.

Tiger Global, a hedge fund known for betting on technology companies before the IPO, has gained a big presence in venture capital. “It’s a great time to raise funds,” Brasoveanu, a partner at the venture capital firm Accel, told CNBC. The quality of these companies and the speed with which they are growing are unprecedented.The Japanese conglomerate SoftBank has also shaken up the world of start-ups investing with its huge Vision Fund in recent years. Increasing competition in the venture capital business has not gone unnoticed by investors. As private tech valuations become more distant, the reality of fear is overlooked, said Hoxton Ventures Kanji.

Iana Dimitrova, CEO of British fintech start-up OpenPayd, said the company was in the process of raising money. Investors have only a limited understanding of how our software enables other companies to offer financial services and IT services. At OpenPaysd, “investors say they’re asking for a small ticket, but they’re writing $100 million,” she told CNBC.

Fintech firms accounted for 22% of global venture capital funding in the second quarter, according to CB Insights. The low interest rate environment has led to an enormous amount of dry powder being poured into risky ventures and bets, Dimitrova added. Investors write big, big checks, “he continued. “I consider this to be detrimental to the long-term sustainability of our industry, as companies focus not on value creation but on burning and using cash.

According to Dimitrova, there are a number of differences between today’s dotcom bubble and that of 1999. For one thing, the bubble of 1999 was driven more by hype than by fundamentals, that is, by the corporate market.

Europe has seen huge growth in venture capital investment this year, even as financing for Chinese companies has declined. While the country still lags behind America and China in technology, Europe has seen a significant increase in start-up investment. There is also a trend of over-indebted firms increasing their foreign investment and announcing sizeable initial rounds of financing. Articulate, a US software company founded in 2002, announced a $1.5 billion Series A round in early July.

The overall trend towards remote working is accelerating the digital transformation and giving European companies access to global markets, Brasoveanu said. It is as easy to sell in Romania as it is in New York.

Valuations climbed into the tens of billions at a number of European technology companies, including Swedish battery maker Northvolt, which was bought by pay-TV channel Klarna, and German business software start-up Celoni. Founded start-ups in Europe raised $50 billion in the first six months of 2021, overtaking the $38 billion raised by companies in the region throughout 2020 according to FactSet. Some of Europe’s start-ups achieved unicorn ratings in record time last year. Earlier this year, the online food app Gorillas achieved unicorn status as the fastest company in Europe, surpassing the record set by online event company Hopin in 2020.

The madness of raising private capital in technology has led to a growing pipeline of companies about to go public. The US has seen a flurry of big tech IPOs in the last year, including Airbnb and Coinbase, while the UK hosted one of the biggest European IPOs of 2021, with a blockbuster direct listing of a fintech company last week. British health technology company Babylon, for example, is to go public as a merger of blank cheque companies later this year. Special Acquisition Companies (SPAC) are also a phenomenon and represent an alternative for high-growth companies considering their IPO.

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