VC Investing in Tech Startups Rushed By Big Investment Companies
The Covid-19 pandemic shifted the stream of capital toward online businesses. As a result, venture capitalists are buying up startup stocks left and right, often at exorbitant prices, to stay in the race for stakes led by large investment companies.
February was an excellent month for tech startups, as the total investment in them amounted to a whopping $35 billion. This is just $6 billion short of the record high in January 2021, and it still created 22 startup unicorns. One of the most significant investments was the $500-million stake in Elon Musk’s aerospace company SpaceX.
Many incredible listings went public in March, and big investment companies seem to be furthering the overpricing trend. Tiger Global Management and Coatue Management are often named as the mammoths pushing VCs to pay more. The former has led some of the largest deals this year, most notably the $450-million round of funding for Checkout.com, turning it into another startup billionaire.
To keep up, VCs halved their investment-decision time.
Business software and eCommerce companies have benefited the most from this investment craze, prompted by the overall shift to web-based daily life due to the pandemic.
However, many seasoned investors warn against jumping on board and making hasty decisions. While this shift in investment trends is bound to help many new startups, it also increases the risk of failed ventures, as not all companies will live up to these grand expectations.
Arun Mathew, a partner at the VC firm Accel, illustrated this danger in the interview he gave the Financial Times: “Not every company can be Zoom or Snowflake.” Whether VCs will learn this harsh truth the hard way remains to be seen.