This week Reuters reported that two-year old flash-sales site Zulily raised USD 85 million in a funding round that valued the company at USD 1 billion. The company sells baby products and home-decor merchandise in the US and UK. The round was led by Andreessen Horowitz, an up and coming VC firm that has raised one of the largest funds this year, as we mentioned last week.
In a relevant BITS blog post, Nick Bilton suggests that getting a billion dollar valuation might seem exciting, almost like “winning the lottery” but it has certain drawbacks. A high valuation limits exits because then only the likes of Apple, Google and Microsoft can finance big ticket transactions like that, and Apple rarely makes such acquisitions.
Another problem with start-ups with higher valuations is attracting talent. If an engineer joins a company valued at USD 10 million that grows to USD 1 billion, there is an opportunity to get very rich, but it is not the case when joining a company already valued at 10 figures, which might slip due to a down round or poor post-IPO performance.
Based on recent financing rounds and stories about the companies, the billion dollar startup club now includes Twitter (USD 8.5 billion); LivingSocial (USD5 billion); Dropbox, (USD 4 billion); Airbnb (USD 2.5 billion); Pinterest (USD 1.5 billion) along with European examples (Spotify and Rovio), according to Bilton. He says that only some of these companies’ valuations might be justified by revenue and growth, e.g. DropBox which has USD 500 million in revenue and 100 million users. Others, like Pinterest and Fab, may be as “overhyped” as Pets.com during the Tech Bubble 1.0.