Any way you slice it, the second quarter this year has been bigger and better for VCs and startups than any other quarter in about a decade --and we may have the dot-com era to thank for at least part of the wild ride.
Many of the ideas born in the 1990s and 2000 have come around again, and this time they're some of the most successful startups in Silicon Valley, posting big-dollar deals over the past few months. Fresh-faced entrepreneurs have dusted off business models for delivery service, social media and e-commerce companies, and venture capitalists have poured money into startups extrapolated from some of the most famous dot-com busts.
But now, say analysts, the time is right -- mobile technology has advanced, consumers are more tech-savvy than they were in the '90s, money is abundant and the bull market just won't seem to quit -- for these ideas to finally become successful businesses.
"Back then, the idea was right, the vision of the future was right," said Robert Ackerman, managing director and founder of Allegis Capital. "Now the environment is right. We've seen these good ideas that just won't die; they were just waiting for the right time."
Instacart, a San Francisco grocery delivery startup that in June raised $44 million from investors including Sequoia Capital and Andreessen Horowitz, looks a lot like the dot-com legend Webvan. Palo Alto-based DoorDash, the on-demand restaurant delivery service that in May raised $17 million; and San Francisco-based Postmates, which just raised $16 million, each bring to mind Kozmo, the online delivery service that folded in 2001. San Francisco's One Kings Lane, a home-goods version reminiscent of the failed e-commerce site Pets.com, recently raised a whopping $112 million, valuing the company at nearly $1 billion. And Pinterest, which resembles storied startup bust GeoCities and gave Internet users a personalized website, raised $200 million -- the fourth-largest deal last quarter.
"In the late 1990s, you had this very big phenomenon called the Internet, and now we have something called mobile that is also going to change everything," said Venky Ganesan, managing director at Menlo Ventures, adding that competition today looks a lot like it did in the '90s, too. "Everyone thought they were going to get Amazoned in the late 1990s, and now everyone is afraid they are going to get Ubered."
Venture investment is now approaching levels not seen since then, giving the next generation of Webvans and Kozmos the firepower to take off. In the second quarter this year, VCs invested $7.1 billion into tech companies -- a 145 percent increase over the same quarter in 2013 and a 51 percent increase over the first quarter of 2014, which, until now, had been the largest fundraising quarter since 2000, according to the MoneyTree Report, compiled by the National Venture Capital Association and PricewaterhouseCoopers using data from Thomson Reuters. For the first half of 2014, the number of deals valued at $100 million or more -- these include Uber, Lyft and Pinterest -- has already exceeded similar deals for all of 2013, and this year is on pace to be one of the biggest in venture investments in at least a decade, according to PwC.
Experts point to a few reasons for the bonanza -- hedge funds are getting involved in tech company investments, adding sizeable sums to funding rounds, because they promise better returns than federally-backed bonds. Low interest rates also make it cheaper for VCs to invest bigger sums for longer periods of time. And as companies take in more cash, their valuations go up -- such as Uber's $18 billion price tag -- and they can demand more in the next round.
The "excess" of money, said Ackerman, has also galvanized the IPO market, which in the second quarter saw more deals than any tine since 2000 -- 83 U.S.-based companies went public. For the first half of the year, more than a third of the nation's IPOs and more than a quarter of the proceeds raised were in Silicon Valley -- including action sports camera-maker GoPro's $427.2 million IPO in June. Similarly, mergers and acquisitions have soared to their highest levels since 2007, according to PwC.
"It's not too hot, it's not too cold," said Brendan Connaughton, chief investment officer and partner with ClearPath Capital Partners. "This is a Goldilocks environment."
But with all the stratospheric valuations, eye-popping funding rounds, and 2.0-versions of Webvan and Pets.com, some are asking: Is it time for another bust?
No reason to panic just yet, experts say. Investors may have learned their lesson from the implosion of 2000 -- unlike the dot-com trend of throwing money at nascent startups in a garage, today VCs are investing mostly in expansion-stage companies that have a working business model, loyal consumers and show some glimmer of a profit in their future. In Silicon Valley, expansion-stage companies took in $3.7 billion last quarter and seed stage got $63.5 million -- less than a quarter of the seed stage funding in the second quarter of 2000.
"We don't have a Pets.com situation," Ganesan said.
But the good times won't last forever. Experts say the bull market and feverish investing is bound to slow down, perhaps in 2015 or 2016. Market expert Michael Greeley warns investors haven't thought out global crises such as the Ebola outbreak, Argentina's default and conflicts in Gaza and Ukraine, which all have potential to rattle the market.
"I can't remember a time when there were so many hot spots and each of them becomes a major issue," he said. "My anxiety is those risks are pretty high. There will be winners and losers."
Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.