It's Certainly Getting Frothy: Q1 2014 Marks Record Quarter For New $1B+ Valuation Financing Rounds

The number of U.S. tech companies that raised their first financing at a $1B+ valuation in Q1 2014 is equivalent to the total number of U.S. tech companies that raised their first financing at a $1B+ valuation in all of 2013 and a 57% increase from 2012's year-end tally.

Q1 2014 saw a steep increase in the number of companies raising financing at a billion dollar valuation. Since the beginning of the year, 11 different U.S.-based private tech companies closed their first financing infusion at a $1B+ valuation. According to CB Insights data, that 3-month figure is equivalent to the total number of U.S. tech companies that raised their first financing at a $1B+ valuation in all of 2013 and a 57% increase from 2012’s year-end tally.

Yes things appear to be getting frothy.

The spike in new billion-dollar valuations is clear in the chart below which maps the number of tech companies that raised their first financing round at a $1B+ valuation by quarter since the start of 2012.

It looks like the billion dollar valuation club will continue to increase in 2014 given the exuberant sentiment and a variety of other factors that analysts point to:

Tech companies taking longer to go public: Since 2007, the time between first funding and IPO in tech has increased significantly. The willingness of tech companies to stay private longer has resulted in companies with perhaps IPO-ready financials instead deciding to raise more capital in order to continue growth without the pressures of the public markets. Moreover, with senior management teams and investors increasingly able to get liquidity early via secondary offerings, the pressure to exit has decreased.

Public market investors (hedge funds and mutual funds) looking for “alpha” by investing in tech startups at the late-stage: Hedge funds and mutual funds have become increasingly active providers of late-stage capital and have collectively invested in 44% of the current crop of private, venture-backed companies that have raised financing at a $1B+ valuation.

The rise of corporates in tech VC: The big balance sheets of cash-rich U.S. corporates including Google and Intel as well as Asian investors like Alibaba and Tencent is pushing a lot of money into the tech ecosystem (attached generally to massive valuations.)

Money is cheap and looking for returns

All of the underlying exit and investor data used in this research brief is from the CB Insights Venture Capital Database and uses our private company valuations and valuation multiples.

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