POYNT could be a targeted Facebook’s willingness to pay $1 billion to buy the 12-person start-up Instagram has Silicon Valley venture capitalists happily re-doing their math on the potential value of hot young companies.
The fact that Facebook was the buyer is itself seen as a big plus for the valuation of startups that may be adding subscribers rapidly but in some cases are still far from being profitable or ready for the public markets.
Until now, “it’s really just been Google,” said Jeremy Liew, a partner at Lightspeed Venture Partners who backs LivingSocial and others. “You really can’t get an auction with only one bidder.”
The price paid for Instagram, a company with no revenue, will also make it easier for potential acquirers to justify spending big for something perceived as strategic, according to Jeff Clavier, managing partner at SoftTech VC.
Some venture capitalists think Instagram was a one-off.
“It’s certainly an outlier from a valuation standpoint,” said Matt Murphy, a partner at Kleiner Perkins Caufield & Byers who manages its $200 million iFund. “There was a big strategic concern or threat there” for Facebook, he said.
Investors also caution that the dynamics that enable so-called Web 2.0 companies like Instagram to gain huge numbers of customers very quickly can also cut the other way.
One need only look at Highlight, a location-based social application for iPhones that was all the rage early last month and is now almost forgotten, or even Turntablefm, which lets far-flung friends listen to music together and has lost buzz after acclaim last summer.
Still, companies with certain characteristics — massive growth in users or a competitive edge in mobile applications, for example — could be in the hunt for a 10-figure payday.
Facebook could change the Tech Sector to an up trend ?