Growing no. of $1bn startups signals bubble

1. Growing no. of $1bn startups
signals bubble
Overvaluations Make It Harder For VCs To Find Exit

2. Contd..
The number of mobile internet startups with valuations crossing $1 billion
has jumped by a third in just eight months and that's spelling trouble for
some venture capitalists looking to cash in on their investments. Already ,
there are signs of worsening returns. The ratio of mobile internet exits -
startups that are either sold or go public -to investments has plunged over
the past six quarters, excluding one outlier deal, according to consulting firm
Digi-Capital.
“Mobile is frothy and bubble-like,“ said Rajeev Chand, managing director and
head of research at Rutberg & Co.Companies that would have gotten $8
million to $10 million in investments a few years ago are now getting as
much as $50 million, he said. “There's way too much money going into
mobile delivery companies. The economics are fundamentally not
sustainable.“

3. Contd..
Investors have jumped into mobile internet startups as services from dog
walking to shopping to food delivery became available via smartphones.In
2014, global mobile data traffic was almost 30 times the size of the entire
global internet in 2000, according to Cisco Systems. As a result, mobile
internet companies that crossed the $1-billion threshold -known as unicorns
-have swelled to about 90 for a combined valuation of more than $800
billion, Digi-Capital said in a report last month.
It wasn't so long ago when there might have been 10 unicorns in an entire
decade, said Matt Murphy , a managing director at Menlo Ventures. Venture
funders, who typically recoup their investments in five to seven years, may
have to wait two to three years longer and perhaps with less rosy results, he
said.

4. Contd..
WhatsApp represented a bright spot last year when Facebook bought the mobile
messaging service for $22 billion. Still, excluding that one deal, the ratio of exits to
investments declined for six straight quarters, Digi-Capital said in the report.
While investments in the second quarter amounted to $16 billion, exits were just
$13.5 billion, half the $26-billion peak they reached a year earlier, the researcher
said.
While in the past, venture capitalists tended to spread their money around, some
are now pouring more into fewer companies, and their risks have skyrocketed, said
Tom Taulli, a mergers and acquisitions consultant in Los Angeles.
Firms, particularly those that stepped in during later funding rounds when mobile
startup valuations were higher, could see losses, and have less money to reinvest.

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