‘This Is Insanity’: Start-Ups End Year in a Deal Frenzy

In late summer, Addition, an investment fund, approached Snyk, a security software start-up, about taking more money. Within 48 hours of meeting, Snyk signed a funding agreement. The funding, raised just eight months after Snyk’s last round, valued the company at $2.6 billion, or 80 times its annual recurring revenue of roughly $30 million.

“They used speed to their advantage,” said Peter McKay, Snyk’s chief executive. “Investors who are waiting for someone to raise a round — that’s almost too late.”

Henrique Dubugras, chief executive of Brex, a start-up that provides credit cards to other start-ups, said he had also had more unsolicited calls from investors. Early in the pandemic, Brex laid off 62 employees and closed a restaurant it operated in San Francisco’s South Park. But in June, business started rebounding, he said. Calls from venture capitalists soon followed.

“I’ve honestly never seen it as aggressive as it is right now,” Mr. Dubugras said. He said Brex was not currently planning to raise more funding.

The froth has created a sense of unease among some investors. Mr. Paley said some of Founder Collective’s portfolio companies had raised “breathtaking” financing rounds that felt risky.

“When people congratulate us, we are sheepish about whether these nosebleed valuations are good for us or the founders,” he said.

But there’s little point in declaring the sky is falling, other investors said. Who would listen? For more than a decade, prominent investors have tried to warn against start-up spending, valuations and bubbles. In that time, the tech industry has only gotten bigger, richer and more powerful.

Article source: https://www.nytimes.com/2020/12/07/technology/this-is-insanity-start-ups-end-year-in-a-deal-frenzy.html