Investors open wallets for fastest-growing startups

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Posted: Monday, March 24, 2014 12:00 am

Airbnb is poised to join the 11-digit club.

The company, which was created nearly six years ago as a way to help people find spare rooms and couches to sleep on, is in advanced talks to raise more than $400 million in capital, a round of financing that would value it at more than $10billion, people briefed on the matter said Thursday.

Such a valuation would surpass that of Hyatt, the 57-year-old hotel stalwart, and make Airbnb the latest technology startup firm to gain an eye-popping net worth. Investors hungry for a piece of the fastest-growing startups have opened their wallets, hoping to get even a small piece of the action before what they hope will be a giant payday.

But Airbnb, a centerpiece of what has become known as “the sharing economy,” is also drawing increasing scrutiny from regulators concerned about safety, rental laws and tax collections. The company has become a point of contention among landlords in big cities, as well.

Leading the potential new fundraising round is TPG Growth, the investment firm that already has a stake in the car-ride service Uber, the people briefed on the matter said. Other prospective investors include the Dragoneer Investment Group and T. Rowe Price, one of these people added.

The discussions, which were first reported by the Wall Street Journal, are continuing and may still fall apart, these people cautioned.

Despite murmurs of a new technology bubble, valuations appear to be rising unchecked. Last month, Facebook — itself worth nearly $170 billion — paid more than $16 billion for the messaging service WhatsApp, a bid that some analysts have described as reasonable given the acquired company’s growth prospects. Dropbox, a provider of online storage, has been appraised at about $10 billion, while Palantir, a sophisticated data analysis firm, has raised money at a $9billion valuation.

The pace of investments appears to be accelerating. Venture capital firms spent $8billion in the last three months of 2013 investing in the likes of Pinterest, the fast-growing social network, according to data from CB Insights. The hope, as ever, is that these startups will eventually be sold or go public at still higher valuations.

“I’ve never seen people so encouraged,” said Colin C. Blaydon, a professor at Dartmouth’s Tuck School of Business. “There will be big winners, and investors don’t want to miss out.”

Others view the valuation race more skeptically.

“We’re seeing valuations go nuts,” said Jim Ellis, a lecturer at Stanford’s Graduate School of Business.

Even so, Ellis conceded that many of the companies now enjoying the limelight were a far cry from those that rose and fell during the dot-com bubble. Many startups now have business models that can lead to sustainable revenue and profits.

Airbnb, founded in 2008, appears to be one of them. Its current investor roll reads like a list of Silicon Valley’s biggest venture capital firms. Among them: Sequoia Capital, the only outside investor in WhatsApp; Andreessen Horowitz, an early backer of Facebook; Founders Fund; and even actor Ashton Kutcher.

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