But hope is rapidly giving way to reality. That adds up to a lot of money chasing the hope of future returns. Thanks to hedge funds, private equity firms, mutual fund companies and foreign cash pouring into tech, late-stage investment dollars surged 25 percent in the third quarter from a year earlier.
start-ups raised $47.2 billion in the first three quarters of 2015, following $50.8 billion in all of 2014, by far the most since 2000, according to the National Venture Capital Association. Unfortunately for Silicon Valley, there's no shortage of companies in the troubled category. However, it's troublesome for businesses with negative gross margins (losing money on every sale), excessive burn rates, inflated valuations and those operating in competitive markets with cash-rich rivals. Normalcy is fine for A and A+ companies, VCs say, as well as for start-ups that have been conservative with raising and spending capital. While the price marks a significant increase from its previous round in January, the company has the revenue and growth to justify the price, the sources said. In other words, some start-ups are still seeing valuation markups.ĭatadog, a provider of cloud monitoring tools, is raising cash at a close to $600 million valuation in a round led by Iconiq Capital, said people familiar with the deal. The top-tier companies see plenty of investor demand, "but if you take the broader market beyond the top 10 to 20 percent it's fair to say there's an adjustment happening," he said. "It's a tale of two cities," said Asheem Chandna, a partner at Greylock Partners in Menlo Park, California. Read More What the Fed hike means for start-ups
A Cumulus spokesperson declined to comment. While a novel technology, the product is proving difficult to commercialize, the sources said.
#Sanity series iconiq software#
Just seven months ago - and two years after its founding - the developer of online human resources software was valued at $4.5 billion.Įnterprise companies are now being forced to raise at more realistic prices.Īccording to Byron Deeter of Bessemer Venture Partners, late-stage private cloud companies on average are being valued at 11.8 times revenue, down from a peak multiple of 15 earlier in the year.Ĭumulus Networks, which helps deliver computer networking capabilities through software, is likely to take money at a price below its $300 million valuation from last year, said people familiar with the company who asked not to be named because the fundraising is still underway. For companies that sell to the enterprise, mid- and late-stage investors are taking a cue from the stock market, where newly listed companies like Box and Pure Storage are trading at valuations that are in line with or below their last private rounds.Ĭouple that with Zenefits, which admitted to falling short of sales growth expectations and is now cutting back on costs.
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