Startup valuations: on the up, or a set up?

After a tough 18 months of bootstrapping, budgeting and battling for survival, most startups won't feel like we're experiencing a new dot com boom.

But that's the observation of the Wall Street Journal, which has noted the optimistic valuations in the consumer web market with companies pre-revenue and just a few months old raising money that values their firms at tens of millions.

WSJ cites the purchase tracker Blippy as an example; $11m in funding that valued the site at $46m this year. Location darling Foursquare raised $20m funding valuing the service at $95m - an increase of $89m in just 12 months. The mighty Twitter saw its valuation rise from $95m in 2008 to $1bn last year.

Are these inflated values, or true signs of optimism in a market that is bouncing back? The piece contrasts curiously with the Angelgate argument going on in Silicon Valley, where a secretive meeting between high profile investors appeared to be colluding to keep valuations down. This may have been Mike Arrington's most unwelcome gatecrash yet.


Photo by sashafatcat on Flickr. Some rights reserved

True Ventures has a rational take on the increasing competitiveness between super angels and VCs, while Fred Wilson at Union Square says collusion has certainly happened where several VCs have been involved in a deal.

"If two or three firms are competing for a deal, and there is no other competition, firms have been known to call each other up, agree to work together on the deal, and then make an offer that is lower than the price each would have had to pay in a competitive situation.

"I know that such situations have happened. I've seen it first hand. But I have not seen it happen in a long time."

But he thinks super angel collusion is a red herring. "The angel/seed market is really competitive these days, particularly in silicon valley. Valuations have risen and terms are weakening, as I've blogged about here recently. This is not a market suffering from collusion. It is a market where the investors wish they could inject some collusion. But they can't and they won't. Market dynamics, at least as they exist today and for some time to come, will not allow it."

On Tuesday, we have a timely meeting with experienced financier Simon Carmichael of Torch, who specialises in helping tech businesses with series b funding. We'll be asking him what he makes of the suggestion that there is collusion in the funding scene and what entrepreneurs can do to protect themselves and their businesses. Contribute your questions or concerns, anonymously if you wish, to the comments feed here.

Today's best video

;
{"cc_re__cc_re__cc_by_2_0_en": ["is may have been Mike Arrington's <a href=\"http://techcrunch.com/2010/09/21/so-a-blogger-walks-into-a-bar/\">most unwelcome gatecrash yet</a>.</p><p><a href=\"http://www.flickr.com/photos/sashafatcat/577298172/\" title=\"collusion illusion institution by sashafatcat, on Flickr\"><img src=\"http://farm2.static.flickr.com/1407/577298172_57c49ee9e6.jpg\" alt=\"collusion illusion institution\" width=\"460\" /></a><br /><em>Photo by <a href=\"http://www.flickr.com/photos/sashafatcat/\">sashafatcat</a> on Flickr. <a href=\"http://creativecommons.org/licenses/by/2.0/deed.en_GB\">Some rights reserved</a></em></p><p><a href=\"http://www.trueventures.com/blog/2010/09/22/founders-come-first/\">True Ventures</a> has a rational take on the increasing competitiveness between super angels and VCs, while <a href=\"http://www.avc.com/a_vc/2010/09/collusion.html\">Fred Wilson</a> at Union Square says collusion has certainly happened where several VCs have been involved in a deal. </p><p>\"If two or three firms are competing for a deal, and there is no other competition, firms have been"], "copyright__copyright__copyright": ["xist today and for some time to come, will not allow it.\"\n\nOn Tuesday, we have a timely meeting with experienced financier Simon Carmichael of Torch, who specialises in helping tech businesses with series b funding. We'll be asking him what he makes of the suggestion that there is collusion in the funding scene and what entrepreneurs can do to protect themselves and their businesses. Contribute your questions or concerns, anonymously if you wish, to the comments feed here.\n\nToday's best video\n\n;", "xist today and for some time to come, will not allow it.\"\n\nOn Tuesday, we have a timely meeting with experienced financier Simon Carmichael of Torch, who specialises in helping tech businesses with series b funding. We'll be asking him what he makes of the suggestion that there is collusion in the funding scene and what entrepreneurs can do to protect themselves and their businesses. Contribute your questions or concerns, anonymously if you wish, to the comments feed here.\n\nToday's best video\n\n;"]}