Is it déjà vu all over again in the United States? Is the U.S. economy going through another tech boom period that may result in a complete collapse in the overall stock market?
According to new data released by the National Venture Capital Association and PricewaterhouseCoopers, venture capitalists dropped down $48.3 billion into U.S. startups in 2014. This is the biggest amount since the dot-com boom era when investors poured $105 billion into more than 300 tech firms in the year 2000.
During 2014, the most active investors were New Enterprise Associates, Andreessen Horowitz, Kleiner Perkins Caufield & Byers, Google Ventures and Khosla Ventures
Last year’s figure was up 61 percent from the previous year’s $30 billion and more than double the $20.4 billion that was pumped into this sector of the economy in 2009, a time when the U.S. was in the midst of the economic collapse.
In December, startups were able to raise $7.1 billion, while mobile companies doubled their investments in the final three months of 2014 to $3 billion. Software companies were the biggest beneficiaries of VC investment with a 49 percent share.
The investments in 2014 were allocated over more than 3,600 deals, again the largest number of deals since 2009. Analysts say this immense growth is due to mega-rounds of funding that included $500 million per deal (think Snapchat’s $485 million or Uber’s $1.2 billion).
Although these tech firms are constructing products and services in order to become the next Facebook or Twitter, organizations are also spending large sums of cash on marketing, sales and staff. This is where the venture capitalists come in because their funding helps cover these operating costs. However, there are fears that startups are getting complacent when it comes to spending at dot-com levels.
One prominent venture capitalist advises caution but noted that he doesn’t see a bubble forming.
“Every bubble in human history that was called a bubble by historians had widespread public participation,” Netscape founder Marc Andreessen said at a conference in October. “You always had a frenzy, you always had the proverbial shoe shine boys or taxi drivers or whoever who were completely hyper enthusiastic about putting every spare penny into the stocks. There’s none of that today. individual money has actually been coming out of stocks for a very long time.”
It may be hard for some to agree with the co-founder of Andreessen Horowitz because it has been reported that there are 49 venture capital-backed firms that are valued at $1 billion, which is larger than the 10 that were around in 2000.
Analysts posit that the hot tech market is the cause for driving up valuations. Last year, the median valuation for all venture finances was $40 million, nearly double that from 14 years ago.
Charles Kane, a senior lecturer at the Massachusetts Institute of Technology’s Sloan School of Management, told the Globe and Mail that this year and next year will likely be bigger than 2014 because U.S. startups aren’t having any trouble seeking out funding nor spending the available money.
Some libertarians attribute this high-level of growth to the printing presses at the Federal Reserve. The easy money in addition to low interest rates are being funneled to Silicon Valley.
