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- W3135109044 abstract "A narrative that the largest companies in public markets (aka the Big Five - Facebook, Amazon, Apple, Microsoft and Google) were at one point all VC-backed unicorn startups and achieved their success by blitzscaling has propagated a belief that money-losing startups pursuing growth at any cost can offer investors a chance to replicate the Big Five’s outsized returns. In recent years this narrative has led to an explosion in unicorn startups, alongside increasing capital inflows entering into private late-stage startups as a whole.New sources of capital flooding into private late-stage startup fundraising deals comes not just from VC funds but from “non-traditional” VCs, a group that includes mutual funds, hedge funds, sovereign wealth funds and corporations. Historically non-traditional VC investors focused more on stock market investing, but in recent years this group has increasingly participated directly in private market fundraising rounds of late stage startups as a strategy to boost reported returns. In doing so these investors have adopted the VC mindset for investment analysis, prioritizing near-term sales growth and potential for market dominance over profitability. This influx of capital has created an attractive environment for late stage startup fundraising, which has been a contributing factor to elevated valuation levels observed in the space by virtue of the common (but misleading) convention of substituting post-money value for fair value used by private market investors. This upward skew in valuations is a source of bias in the top line returns reported across this asset class, which further reinforces capital inflows to the space.The consequence of the collective dynamics described above has been a positive feedback loop in valuations for late-stage VC-backed startups in private financial markets. In the last few years, VC-backed IPOs have been growing in frequency and size as public market investors are succumbing to price-driven narratives that rely heavily on VC-style investment analysis and less on traditional valuation methods based on normalized earnings and cash flows. This has created the situation where equity valuations for late-stage VC-backed startups have been bid up by speculation and have decoupled from their underlying business value." @default.
- W3135109044 created "2021-03-15" @default.
- W3135109044 creator A5044525553 @default.
- W3135109044 date "2020-01-01" @default.
- W3135109044 modified "2023-09-23" @default.
- W3135109044 title "Tech Bubble 2.0: How Price Driven Narratives and Return Chasing Behavior Have Created Unsustainably High Valuations for Late Stage Startups in Financial Markets" @default.
- W3135109044 cites W4254697721 @default.
- W3135109044 doi "https://doi.org/10.2139/ssrn.3757933" @default.
- W3135109044 hasPublicationYear "2020" @default.
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