“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.
Buzz: California startups are attracting record sums of venture capital cash at a pace thats nearly twice what came in during the peak of the dot-com-bubble insanity.
Source: Dow Jones VentureSource
The trend[hhmc]
Despite all the debate about the quality of Californias business climate, venture capitalists invested $82 billion in 2,360 California companies in the 12 months ended in June. Thats up 62% in a year. Its up 137% above the decades average investment pace.
The flow of venture capital is one key factor driving the creation of new businesses, especially in technology-related industries. These high-risk, high-reward gambits made supposedly by the “smart money” crowd are often seen as a barometer of (1) the health of startups and (2) what cutting-edge investors are thinking.
California is easily the nations top draw for these investments. In fact, the Golden State is getting more popular: It took in 58% of all U.S. venture capital funding in the past year — a bounty thats surged from a 49% share a year ago and an average 50% take during this decade.
Other data reveals investors do have some concerns.
The number of California companies funded — 2,360 in the past year — was down 7% vs. the previous 12 months. The states share of companies funded nationwide was 41%, roughly the average since 2010.
With money up and deals down, the average California venture capital placement was $35 million per deal in the past 12 months, up 75% in a year. This suggests venture capitalists are choosing to be more selective while taking on larger bets on the states fledgling companies.
To be fair, somewhat similar patterns were seen in the rest of the nation. Investors bet $59 billion on 3,415 venture capital deals in the past 12 months. Dollars raised were up 10% in a year but the number of companies funded fell 6%. The average investment of $17 million was 17% higher than a year ago.
PS: How far ahead is California? New York was No. 2 among the states in venture capital raised at $20 billion, up 28% in a year. Then comes Massachusetts at $11 billion (up 5%); Texas at $3 billion (up 5%) and Washington at $2.5 billion (down 2%).
PPS: Its not just early-stage companies drawing cash. Initial public offerings — the end game for many venture capital investments — are also hot. Established California brands such as Uber, Lyft, Slack, Pinterest and Beyond Meat have all gone public this year. And 2019s second quarter had the most IPOs in four years; deals that raised the most money since 2014, according to Renaissance Capital.
Other voices[hhmc]
Californias ample supply of startup cash was one reason it recently ranked eighth-best state to start a business when WalletHub, a personal-finance website, looked at a host of business-creation metrics.
Texas was No. 1 followed by Utah, Georgia, North Dakota, Oklahoma, Florida and Arizona.
WalletHub scored California third-best for “business environment” and “access to capital” but the state got a fifth-worst grade for “business costs.”
How bubbly?[hhmc]
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … THREE BUBBLES!
This cash flow is a hearty “thumbs up” statement from these investors, but any risky investment thats raking in record cash — 62% more Read More – Source
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