Deal flow and valuations are reaching new heights in technology startups, as a flood of cheap cash fuels efforts to find the industry’s next big winners, from software to social media.
In the first quarter this year, U.S. startups raised $69 billion from investors—41% more than the previous record, set in the fourth quarter of 2018, according to data firm PitchBook Data Inc. The average valuation for startups at all stages also reached a new high, and more than tripled from last year to $1.6 billion for late-stage companies.
“I’ve never seen it this frenzied,” said Larry Albukerk, who started his investment fund EB Exchange, which gives investors access to purchase stock in startups, in 1999. “It’s lightning-fast rounds with a lot of cash.”
Investors are offering startups five times—or more—the amount of money they are asking, and deals that used to take months now sometimes close in days, according to venture capitalists, deal makers and founders. Startups are raising cash every few months rather than every couple of years, and valuations are soaring with each new check, these people say.
Many of these new social apps use video, audio and text features to connect strangers and friends, fans and celebrities, including the chat service Discord Inc. and Stationhead Inc., where users can effectively host their own radio show. Others such as Patreon Inc. and Clubhouse are built on an industry of self-described creators seeking new platforms where they can self-publish content and make money.
Clubhouse has been center stage. Three months ago, the audio-chat app was celebrating a new funding round in which venture capitalists valued it at $1 billion, 10 months after it launched. Today, it is valued at $4 billion, according to people familiar with the matter.
Bloomberg previously reported that Clubhouse was in talks for new funding at that valuation.
Clubhouse didn’t disclose the terms when it announced its latest financing in a blog post Sunday. According to Lagniappe Labs, a private-market research firm, Clubhouse made a corporate filing with the state of Delaware that shows it raised about $200 million in the round. That brings its total fundraising to more than $300 million in just more than a year, even as the app is still sorting out how to make money, moderate spontaneous conversation and fend off an army of competitors.
Clubhouse said in a blog post it had “grown faster than expected” and the new funding would help it, among other things, pay creators and performers on the app, expand internationally and build out the technology.
“I think it’s completely rational if they are the next consumer platform,” Sarah Cannon, an investor with Index Ventures, which hasn’t backed Clubhouse, said of the valuation. Facebook’s market capitalization is more than $850 billion. “If you think that audio is some fraction of that, then the opportunity to be a live audio platform is a many tens of billions of dollars opportunity by itself… Details here.
