Jessica’s Alba’s start up company just got more funding and is now worth $1.7 billion. Uber was recently valued at $51 billion — the largest valuation for a private company in the world. Airbnb is allegedly worth $25 billion.
The list goes on. This rather long list of start ups with eye-popping valuations is concerning some investors that there is a massive start up bubble that could pop soon. The 6-year old bull market has less momentum this year, and other bubbles, such as Chinese stocks, have already burst.
But LinkedIn’s co-founder Reid Hoffman sees no reason for the growing “skepticism about these billion-dollar maybes.”
He says that the growth of cheap technology makes it possible for start-ups to grow in size pretty quickly today.
“A couple college students can build an application that 100 million users might adopt in a matter of months,” he points out.
In this environment, investors are correctly valuing the companies at “a billion dollars or more,” Hoffman says.
Hoffman cited research from venture capitalist Aileen Lee of Cowboy Ventures that showed only a small number of American tech start ups — 39 out of 60,000 — had valuations higher than $1 billion between 2003 and 2013.
Those 39 companies were members of what Lee called the “Unicorn Club.” Facebook was in the Unicorn club when it was a private company. As was LinkedIn, valued at $4.25 billion. Now it’s market cap is $24 billion.
Now there’s many more unicorns: over 125 tech start ups are worth $1 billion or more, according to CB Insights, a venture capital database.
Hoffman argues that it’s okay that the Unicorn club is bigger. The world is more digitally connected today than in 2003 with smartphones, tablets, and computers. This new “Networked Age” as Hoffman says creates more opportunity for new companies.
It’s because of all of these reasons Hoffman says he wouldn’t place too high of a premium on “investors who believe…we’re in the midst of a bubble.”