The money spigots for U.S. startups opened last year to their widest since the peak of the dot-com boom in 2000.
Venture capitalists pumped $48.3-billion into U.S. startups in 2014, according to data today from the National Venture Capital Association and PricewaterhouseCoopers, the most since investors piled $105-billion into closely held companies in 2000. The 2014 total was up 61 per cent from $30-billion in 2013 and was more than double the $20.4-billion invested in 2009.
The venture number caps what was a year of megadeal funding rounds and rising valuations for startups, especially in the technology industry. Mobile car-booking company Uber Technologies Inc. reeled in two financings that each exceeded $1-billion last year, ending with a valuation of $40-billion. Venture fundings of more than $500-million hit a six-year high last year, according to researcher CB Insights.
"I think we're in an environment where there are a lot of things to celebrate, but we're getting to the point of excessive in the amount of capital being raised and valuations," said Joe Horowitz, managing general partner at Jafco Ventures.
The flood of money has renewed debate about whether Silicon Valley is in a bubble. Venture capitalists including Andreessen Horowitz's Marc Andreessen, Benchmark's Bill Gurley and Breyer Capital's Jim Breyer have all cautioned in recent months that the good times may not last for startup fundraising "When the market turns, and it will turn, we will find out who has been swimming without trunks on," Andreessen said in a Twitter post in September. Bloomberg LP, the parent of Bloomberg News, is an investor in Andreessen Horowitz.
The NVCA and PricewaterhouseCoopers data doesn't fully capture the amount of money being poured into U.S. startups because the survey only tracks investments from venture capitalists. Other types of investors have also increasingly started putting money into startups, including hedge funds, sovereign wealth funds and international companies. Last month, for example, Chinese Web company Baidu Inc. agreed to invest in San Francisco-based Uber.
Apart from Uber, other U.S. startups that benefited from the easy-money environment last year were virtual-reality startup Magic Leap Inc. and mobile messaging company Snapchat Inc., as well as media startup Vice Media, according to NVCA and PricewaterhouseCoopers data.
Many of the startups taking in money are receiving larger funding amounts. The number of investing deals last year rose to 4,356 last year, up 3.9 per cent from 2013, illustrating how more money flooded into a relatively constant number of companies, according to the NVCA and PricewaterhouseCoopers report.
"The inflow of capital and public market funds is very real and sizeable," said Steve Harrick, general partner at Institutional Venture Partners. "The investment climate is very good in terms of opportunities."
Venture capitalists last year paid particular attention to software startups, which accounted for 41 per cent of total investments. It was the largest share the category has held since at least 1995, according to the data.
Among the most active venture firms in 2014 were New Enterprise Associates, Andreessen Horowitz, Kleiner Perkins Caufield & Byers, Google Ventures and Khosla Ventures, CB Insights said.
Even with the warnings from some venture capitalists, others said the rush of money is set to continue. Charles Kane, a senior lecturer at the Massachusetts Institute of Technology's Sloan School of Management, said venture investors still need to deploy the huge amounts of funding they've raised.
"Next year will be bigger than the past year," Kane said. "The venture capital firms that have gone out to raise money haven't had trouble raising money."