Cash is pouring into tech startups from every source
When it comes to raising money, right now is one of the best times in history to start a technology company. Global initial public offerings (IPOs) for tech firms are off to their hottest start since the dot-com bubble in 2000. Venture capitalists, meanwhile, have invested more than twice that amount in the sector. The crypto craze is also fanning the flames, offering a new source of highly speculative (and legally ambiguous) capital. A mountain of cash is available for young tech companies, following years of easy money policies from the biggest central banks. Venture capital firms have invested about $67 billion globally so far this year, on pace to exceed the record high of $87 billion in 2016, according to PitchBook data. Valuations have skyrocketed for some startups, altering the mechanics of the investing process, said Michael Jackson, a partner at Mangrove Capital Partners. Some fund managers feel pressured to join in at almost any valuation, he said
Indeed we live in bubbly times, but of course the use of digital devices and services is exploding,” said Jackson, who was previously Skype’s chief operating officer.
The optimism is not unfounded, as most of the global economy is growing solidly. Entrepreneurs have learned to transplant ideas from one geography to another, and the so-called gig economy is opening up new opportunities for companies and workers. But in some regions, the last downturn—a big one, granted—was about a decade ago, which suggests some complacency may also be at play. Jackson points out that 30-year-old founders and financiers may have never worked through a major plunge in valuations.
In the IPO market, tech companies have raised $27 billion, a first-half result only exceeded by the blistering $56 billion raised in the first six months of 2000, according to Dealogic. It’s not quite as impressive when adjusted for inflation: in current prices, the amount raised in the first half of 2000 was a whopping $82 billion, three times more than the same period this year.