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Overvaluation of Startups

Overvaluation of Startups
April 13, 2021

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In 2013, venture capitalist Aileen Lee coined the term unicorn to describe startups worth more than $1BN and less than a decade old. While unicorns were meant to be a term for the rare and almost mythical start-up, there are so many unicorns now that they are no longer rare in the startup world. More and more companies are crossing the $1BN mark, earlier and faster. For example, yesterday, we wrote about the most highly-valued company in the US, Stripe, which currently sits at a $115BN valuation. The company passed the $1BN mark in 2014, 4 years after it was founded, and sits at a pinnacle just over a decade since its inception.

A look at history
Not all overvalued companies live up to their expectations. In fact, many don’t. WeWork is a clear example of an overvalued startup gone wrong. At its peak, the company was worth $47BN after a Series H funding led by Softbank. But this valuation went fast south after the company opened its books prior to listing publicly and it became clear how upside-down were its economics and how much money the company was losing. 

Profit vs. Growth Potential
Even today, many companies that IPO are not profitable. Both ride-hailing companies Uber and Lyft became public companies while still being billions of dollars in the red, and many public investors still saw and continue to see their potential, considering factors such as the cost to duplicate the product or service the startup offers. Consider that Amazon lost money for 6 straight years before it finally turned a profit and saw the stock take off.

Overvaluation in 2021
The rise of SPACs is creating a unique bubble of overvaluation, especially in industries like autonomous vehicles, where every company is looking to be “the next Tesla.” Two EV companies who have gone public via SPAC have already been criticized for faking their potential, and it remains to be seen if any of these companies can live up to their public expectations.

Nuro partners with Dominos
Self-driving cars are delivering pizzas in Houston in a pilot program between Nuro and Dominos.
Photo Credit: Nuro
[Read More]
Microsoft invests in healthcare cloud strategy
Nuance, notable for its AI speech recognition, also has decades of healthcare and enterprise AI experience. It is Microsoft’s 2nd biggest purchase since LinkedIn.
[Read More]
Since last week, PrivCo has added:
1714 Companies | 234 Funding Activities | 111 M&A Deals

Funding & Deal Highlights:

Redis Labs raises $110MM led by Tiger Global Management
Big Data Software & Internet Services • Round G • Santa Clara, CA

Masterclass raises undisclosed amount led by Fidelity Investments
Edtech Software & Internet Services • Equity • San Francisco, CA

Securiti raises undisclosed amount from Cisco Investments
Cyber Security Software & Internet Services • Equity • Palo Alto, CA

Greenlight Card raises undisclosed amount from Andreessen Horowitz
Fintech Software & Internet Services • Round D • Atlanta, GA

Better Mortage raises $500MM led by Softbank
Consumer Finance • Equity • New York, NY

Box raises $500MM led by KKR
Cloud Software & Internet Services • Equity • Los Altos, CA

Tend Dental raises $125MM led by Addition 
Health Care Providers • Round C • New York, NY

The Zebra raises $150MM led by Hedosophia
Insurtech Software & Internet Services • Round D • Austin TX

AxleHire raises $20MM led by Ajax Strategies
Logistics Services • Round B • Berkeley, CA

Project Canary raises $10MM
Industrial Services • Round A • Denver, CO

Nuvocargo raises $12MM
Logistics Software & Internet Services • Round A • New York, NY

CaptivateIQ raises $46MM led by Accel
Payroll Software & Internet Services • Round B • San Francisco, CA

Microsoft acquires Nuance Communications for $16BN
NLP Software & Internet Services • Acquisition • Burlington, MA

Platinum Equity acquires Cabinetworks Group 
Building Products • Acquisition • Ann Arbor, MI

Prime Pensions acquires Squire Retirement Plan Services 
Professional Services • Acquisition • Verona, NJ

McNally Capital acquires Orbis Operations
Analytics Technology Services • Acquisition • Mc Lean, VA

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