Author: Erin Griffith / Source: New York Times
In late April, when Mike Massaro set out to get $40 million to $75 million in funding for his payments start-up, Flywire, he contacted a small group of investors he already knew. But word quickly got around, and other investors flooded his inbox with $200 million of investment offers, half of which he turned down.
Gusto, a payroll and benefits software company, raised $140 million in July, but could have done five times that, according to Joshua Reeves, its chief executive and founder.
Convene, a real estate services start-up, recently obtained $152 million and turned away more than $100 million of additional investment. Soon after, another wave of hopeful investors called, asking if the company would be looking for more financing, according to Ryan Simonetti, Convene’s chief executive.
Start-ups raising $100 million or more from investors — known as a mega-round in Silicon Valley — used to be a rarity. But now, they are practically routine, producing a frenzy around tech companies with enough scale and momentum to absorb a large check.
The jump in oversize investments is led by relatively new investors, including the Japanese conglomerate SoftBank, Chinese companies and sovereign wealth funds. They see a chance to capitalize on tech’s incursion into just about every industry, and want to put their money down before the young companies go public.
By entering the tech market, they have all but eliminated talk in Silicon Valley about an investment bubble — a leading concern a couple of years ago — because the money now seems almost limitless.
For the start-ups, the pots of money are changing the normal way of building a tech company. They must move even faster, expand their ambitions and collect more investment money than ever — even if they might not be ready. They risk becoming too reliant on funding and never finding a path to profit.
“If your competitor is going to raise $150 million and you want to be conservative and only raise $20 million, you’re going to get run over,” said Bill Gurley, a managing partner at Benchmark Capital.
Investors participated in a record 273 mega-rounds last year, according to the data provider Crunchbase. This year is on pace to easily eclipse that, with 268 completed in the first seven months of the year. In July, start-ups reached more than 50 financing deals worth a combined $15 billion, a new monthly high.
In the last 10 days, Letgo, an online classifieds ads company, raised $500 million. Actifio, a data storage company, took in $100 million. MyDreamPlus, a co-working space start-up, secured $120 million. And Klook, a travel activity booking site, got $200 million.
These mega-rounds have become so common that CB Insights, which tracks start-up investments, has even debated lifting its definition of a mega-round to $200 million or more, according to Anand Sanwal, the firm’s chief executive.
Many of the new investors, including SoftBank’s $93 billion Vision Fund, manage funds so large they dwarf the entire traditional venture capital market in the United States. These giant funds are looking for start-ups that can take large sums of money with one shot. Writing lots of small checks is too time-consuming, and the returns from small bets will not make a difference for a such a big fund. So investors are competing to back any start-up that shows promise and the ability to put $100 million or more to use.
…
The post $100 Million Was Once Big Money for a Start-Up. Now, It’s Common. appeared first on FeedBox.