In case you did not see it on Saturday, the Wall Street Journal ran an article noting that 30 companies had gone public in 2014 at valuations less than their last private round. The Journal mentioned this fate was likely to befall Hortonworks and New Relic, two more enterprise software companies that have filed to go public.  It also ran a chart of other companies that have faced the same issue, including several B2B cloud platforms (e.g., Rubicon, Travelport, Yodlee).

Wall Street Journal Chart of Tech Valuations

The article also noted that Bessemer’s index of cloud-computing stocks has fallen 5% since its high in mid-Feburary, though the index is up over 30% since the beginning of the year.

Chart of Bessemer Venture Partners Cloud Stock Index











Just the day before, the Wall Street Journal ran another article on the rapidly rising private valuations for Uber and other venture-backed companies.  On the surface, it seems public valuations dipped for much of 2014, while the private party just kept on going.   Very recently the public markets have resumed their strength.  Perhaps valuations are converging?  Or perhaps froth is developing in B2C again (see below)?  As usual, it is hard to know.

Wall Street Journal chart of Startup Valuations

Previously (here), I have suggested two tongue-in-cheek ways to know when enterprise software valuations are getting a little ahead of themselves.  Both were learned first-hand from the prior bubble, which many folks seem not to recall almost 15 years later.  The two valuation indicators are:

1.  The Grocery Delivery Bubble Indicator (GDBI).  When valuations of grocery delivery companies go through the roof, beware.

2.  The High Profile Real Estate Deal Bubble Indicator (HPREDBI).  When Silicon Valley companies begin investing massive amounts in new campuses for their companies, also beware.

With respect to the GDBI, last week Instacart, a grocery delivery service that delivers from multiple chain supermarkets announced it had raised $100 million at a $2 billion valuation.  (I get that there is a local density/network effect in this business, but it seems like a real scramble to differentiate a service that delivers food from Whole Foods and Safeway.)

2.  With respect to the HPREDBI bubble, several news items caught my eye:

  • Google spent $120 million on 12 acres in Southern California and leased NASA’s Moffett Field–so they will have their own airport, hangar, and golf course-all of which is admittedly very convenient.
  • Amazon will have 10 million sq. ft of space in downtown Seattle by 2019
  • Facebook recently bought 60 acres in Menlo Park for $100 million

I know valuations this time are nothing like the last bubble, but these two indicators, and the past year, show that the path of valuations is not inexorably upward.  Caveat Emptor.

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