Several venture capital firms have booked returns in recent months not seen in 20 years or more, a Wall Street Journal analysis found.
Among the big U.S. winners:
- Sutter Hill Ventures bet less than $112 million on cloud computing firm Snowflake and, in March, cashed out with a profit of almost $12 billion;
- Sequoia Capital put $235 million into Airbnb, a stake now valued at about $14 billion; it placed $240 million with upstart DoorDash and now sits on about $8.4 billion in the delivery firm’s stock;
- Accel holds about $7.5 billion in the recently-listed Ui-Path software firm after investing $172 million.
If these U.S. firms sold their holdings, their cash in hand would far surpass that from dot-com-era megadeals, including Accel’s $5-billion profit on $15 million sunk into a young Facebook and the $7 billion Kleiner Perkins cleared on its $3-million wager on Juniper Networks – although the previous deals returned greater percentage gains.
The venture firms’ profits have swelled with the influx of federal stimulus money and individual investors lured into the market by tales of quick, large profits driving share prices ever upward, analysts note.
“There’s a flight to growth and a flight to innovation,” partner Julia Feldman at Silicon Valley Bank, told the WSJ.
However, companies’ market valuations have been rising faster than their revenues, which smacks of the dot-com bubble and leaves Feldman “cautious… about what that means for future investments.”
From 2002 through 2018, the median price-to-sales ratio for tech companies’ initial stock offerings, which is its market capitalization divided by the most recent year’s revenues, was 12, University of Florida economist Jay Ritter, who monitors IPOs, said to the WSJ.
In 2020, the ratio was a record 23 and now sits at 20, he said.
So far this year, 21 IPOs have valued companies at more than $5 billion after their first full day of trading, Ritter pointed out, setting 2021 on course to set a record.
In all of 2000, the year the dot-com boom went bust, there were 42, he said.
Abroad, Japan’s Softbank Group, sank slightly more than $200 million into Alibaba, China’s Amazon clone, a stake that has now grown to more than $150 billion even after Softbank has sold several batches of Alibaba shares over time.
TRENDPOST: As we have been reporting, we note these articles to illustrate the rising income disparity and how the rich are getting richer and the Bigs keep getting bigger.