"That is insanity": Begin-ups finish the yr in a deal frenzy

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SAN FRANCISCO – Hopin, a London virtual events start-up, had seven employees and was valued at $ 38 million as of the start of the year. Johnny Boufarhat, the company's general manager, had no plans to raise more money.

But as the pandemic spread and more people hosted virtual events, Hopin's business took off. Unsolicited offers from investors were received. "It's like beating a drum," said Boufarhat. "This is the new way for investors to seduce founders."

In June, Hopin raised a new $ 40 million from venture capital firms like Accel and IVP. Last month, without even making a formal presentation, the company received an additional $ 125 million and valued at $ 2.1 billion – a 77-fold increase over last year.

And yet, Mr. Boufarhat said, "Investors reach out almost daily."

At the beginning of the pandemic, there were numerous warnings of its doom. Those who had largely faded from the initial shock of the coronavirus subsided. Now that the new reality of remote working, school, shopping, and socializing is accelerating adoption of tech products and services, the mood has turned even further – to a frenzy of doing business.

Startups like Discord and Robinhood raise more money at sky high reviews and then be inundated with new financing offers. Venture capitalists fight for business. And as DoorDash delivery service and home rental startup Airbnb prepare to go public this week, the IPO gold mine is likely to add even more to and fuel Silicon Valley's startup boom.

"Almost every hot company is being watched like crazy right now," said Matt Murphy, investor at venture capital firm Menlo Ventures. "More than ever there is this flight to be in the fortune at any cost."

The boom is not only due to the increased demand for digital products and services. Low interest rates force investors to seek returns in increasingly risky assets. Venture companies have raised record capital. A rapid stock market has more I.P.O.s. Big tech companies make bold acquisitions. Bitcoin has also hit a new high.

Startups amassed $ 36.5 billion in funding in the third quarter, up 30 percent year over year, according to CB Insights, which tracks private funding. So far this year, start-ups have collected 223 “mega-rounds” of 100 million US dollars or more in order to exceed the previous year's level according to the Pitchbook.

Average ratings for more mature startups also soared to a high of $ 584 million, according to Pitchbook. And 81 I.P.O.s raised $ 28.5 billion in the third quarter, the busiest time for listings since 2000, according to Renaissance Capital.

"I haven't seen anything like this in over 20 years," said Eric Paley, an investor at the venture firm Founder Collective. "The party is as loud and the drinks flow as freely as the dot-com boom, even though we all drink at home and alone."

While some startups have pulled back in the pandemic, far more have been on the right side of the split in the economy. Compress with the coronavirus After a few years of technology adoption in a matter of months, lesser-known software companies that focus on areas such as cloud computing, financial technology, and collaboration tools have done well. Wall Street recently welcomed public listings from fast-growing software startups like Snowflake, Asana, JFrog, Sumo Logic, and Unity.

The world has underestimated how big the already huge tech industry could get, said Roseanne Wincek, an investor at Renegade Partners. "More and more people are waking up to it," she said.

On Wednesday, DoorDash plans to list its shares and go public with a valuation of up to $ 35.3 billion, more than double its most recent private valuation. The company increased its proposed price range on Friday from $ 75 to $ 85 to $ 90 to $ 95 per share. The listing could help repay SoftBank, the mega-fund that was humiliated last year by a spate of bad investments in startups like real estate company WeWork.

Airbnb, crippled by travel disruptions in the spring, then plans to go public the next day. The company plans to raise the proposed price range for its listing, said a person with knowledge of the situation, increasing the valuation to as much as $ 42 billion, or 32 percent above pre-pandemic levels.

Private startups typically source every 12 to 18 months, but with investors fighting fiercely for money, that time frame is now cut down to three to six months, entrepreneurs and investors said. Some startups even close consecutive rounds of funding with higher valuations.

After Discord, a social media platform, raised $ 3.5 billion worth of money in June, investors immediately called to give the company more money, said a person with knowledge of the company. Now Discord is in talks to increase more and double its valuation to $ 7 billion, said two people with knowledge of the talks who were not allowed to speak publicly. Discord declined to comment. TechCrunch first reported on its new funding.

Instacart, a grocery shipping company, also ran two blockbuster funding rounds this year, more than doubling its valuation to $ 17.7 billion. Robinhood, the stock trading app, raised $ 1.25 billion in four separate funding rounds this year, valued at $ 11.7 billion.

In a pandemic, investors found it difficult to impress entrepreneurs with posh dinners or celebrity parties. But they gained an advantage by moving the fastest.

Rahul Vohra, an entrepreneur who also supports young startups, often hears a company's pitch, does diligence, signs a contract, and transfers the money the same day, he said.

"There's no point sitting on the deal," said Vohra. Waiting a week means the deal could get more expensive or overcrowded with other investors, costing him the chance to invest, he said.

In late summer, the Addition mutual fund reached out to Snyk, a security software start-up, to take more money. Snyk signed a funding agreement within 48 hours of the meeting. Funding, raised just eight months after Snyks last round, valued the company at $ 2.6 billion, or 80 times its annual recurring revenue of around $ 30 million.

"They used the speed to their advantage," said Peter McKay, Managing Director of Snyk. "Investors waiting for someone to raise a round – it's almost too late."

Henrique Dubugras, executive director of Brex, a start-up that provides credit cards to other startups, said he had also received more unsolicited calls from investors. At the start of the pandemic, Brex laid off 62 employees and closed a restaurant in San Francisco's South Park. But business began to recover in June, he said. Calls from venture capitalists soon followed.

"I've honestly never seen it as aggressive as it is now," said Dubugras. He said Brex is currently not planning to raise more funds.

The foam has made some investors feel uncomfortable. Mr Paley said some of Founder Collective's portfolio companies had sparked "breathtaking" rounds of funding that felt risky.

"When people congratulate us, we are embarrassed about whether these nosebleed ratings are good for us or the founders," he said.

But there's little point in explaining that the sky is falling, other investors said. Who would listen For more than a decade, prominent investors have tried to warn of startup issues, valuations, and bubbles. During this time, the tech industry has only gotten bigger, richer, and more powerful.

Some investors pointed to Sequoia Capital, one of the most prominent venture firms in Silicon Valley, which in March sent out a dramatic memo entitled "Black Swan" urging companies to prepare for a difficult year. Half a year later, Sequoia partner Roelof Botha said at a TechCrunch virtual conference that he didn't expect how much tech companies would benefit from this era. Sequoia declined to comment.

In the same week, three Sequoia-supported startups held lucrative I.P.O.s. The company is likely to see new winds this week due to its investments in DoorDash and Airbnb. Sequoia also owns interests in Zoom, the video conferencing company that has grown from a valuation of $ 1 billion to $ 116 billion in less than two years.

Frank Rotman, venture capitalist at QED Investors, tweeted in August that the pattern of startups building back-to-back funding rounds is "the most worrying trend I see". He wrote that "a company can easily be blown off the rails with too much simple and cheap money in its bank account". Several top venture capitalists wrote to him, agreeing, he said.

Last week when QED closed a new investment, another venture company asked to put money into the same company in a two to three-fold valuation increase. The company wanted to sign an agreement on the day Mr. Rotman's company transferred their money. This was the earliest moment it would be possible to strike another deal.

"This is insane," said Mr. Rotman.