Saturday, June 19

‘This Is Insanity’: Start-Ups End Year in a Deal Frenzy

SAN FRANCISCO — Hopin, a virtual events start-up in London, had seven employees and was valued at $38 million at the beginning of the year. Johnny Boufarhat, the company’s chief executive, wasn’t planning on raising more money.

But as the pandemic spread and more people held virtual events, Hopin’s business took off. Unsolicited offers from investors started pouring in. “It’s like a drumbeat,” Mr. Boufarhat said. “That’s become the new way for investors to tempt founders.”

In June, Hopin raised a fresh $40 million from venture capital firms such as Accel and IVP. Last month, without even building a formal presentation, the company garnered a further $125 million, valuing it at $2.1 billion — a 77-fold increase from a year ago.

The average valuations for more mature start-ups also spiked 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 period 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 are flowing as freely as the dot-com boom, despite that we’re all drinking at home and alone.”

Private start-ups normally raise funding every 12 to 18 months, but with investors furiously competing to give them money, that timeline has now shrunk to three to six months, entrepreneurs and investors said. Some start-ups are even closing back-to-back rounds of funding at higher valuations.

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

Instacart, a grocery delivery company, also raised two blockbuster rounds of funding this year, more than doubling its valuation to $17.7 billion. Robinhood, the stock trading app, has pulled in $1.25 billion in four different funding rounds this year, valuing it at $11.7 billion.

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

Rahul Vohra, an entrepreneur who also backs young start-ups, frequently hears a company’s pitch, conducts diligence, signs a deal and wires the money all in the same day, he said.

“There’s no point in sitting on the deal,” Mr. Vohra said. Waiting a week means the deal could get more expensive or become overcrowded with other investors, costing him a chance to invest, he said.

In late summer, Addition, an investment fund, approached Snyk, a security software start-up, about taking more money. Within 48 hours of meeting, Snyk signed a funding agreement. The funding, raised just eight months after Snyk’s last round, valued the company at $2.6 billion, or 80 times its annual recurring revenue of roughly $30 million.

“They used speed to their advantage,” said Peter McKay, Snyk’s chief executive. “Investors who are waiting for someone to raise a round — that’s almost too late.”

Henrique Dubugras, chief executive of Brex, a start-up that provides credit cards to other start-ups, said he had also had more unsolicited calls from investors. Early in the pandemic, Brex laid off 62 employees and closed a restaurant it operated in San Francisco’s South Park. But in June, business started rebounding, he said. Calls from venture capitalists soon followed.

“I’ve honestly never seen it as aggressive as it is right now,” Mr. Dubugras said. He said Brex was not currently planning to raise more funding.

The froth has created a sense of unease among some investors. Mr. Paley said some of Founder Collective’s portfolio companies had raised “breathtaking” financing rounds that felt risky.

“When people congratulate us, we are sheepish about whether these nosebleed valuations are good for us or the founders,” he said.

But there’s little point in declaring the sky is falling, other investors said. Who would listen? For more than a decade, prominent investors have tried to warn against start-up spending, valuations and bubbles. In that time, the tech industry has only gotten bigger, richer and more powerful.

Last week, as QED completed a new investment, another venture firm asked to put money into the same company at a twofold to threefold valuation increase. The firm wanted to get an agreement signed the day that Mr. Rotman’s firm wired its money, which was the earliest moment it would be possible to strike another deal.

“This is insanity,” Mr. Rotman said.

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