Fundamentally based on recent IPOs, Silicon Valley is gobbling up investment capital at a faster rate than it can perhaps digest it. According to data compiled by Bloomberg, throughout the year there has been more than 11 nine-figure fundings in technology companies alone. Amongst this is Lyft, which during April managed to raise $250 million of venture capital funding from Alibaba Group, Daniel S. Loeb’s investment firm, Third Point and others; pushing its valuation to more than $700 million.
“We are experiencing most of this tech-based firms staying private for longer, as a result this companies are storing more cash in the balance sheet as cushioning financing, even when this capital is not being used for operational expenses.” Gonzalo Lopez Jordan and Santiago Steed, managing partners of Patagonia Financial Holdings mentioned.
Based on previous high achieving years for technology companies, recent transactions have left a ringing noise in the ears of CEOs and entrepreneurs throughout this industry. From an insider’s perspective, life couldn’t be better, Facebook raised $16 billion in 2012, WhatApp’s was acquired for $19 billion, and Candy Crush’s IPO raised $500 million for King Digital Entertainment Plc, a company which at the time based 78% of its revenues from a mobile platform game.  Following the pattern of this enormous multi-billion dollar deals, a bigger percentage of Silicon Valley’s entrepreneurs are extending the time frame of private operations pursuing an increase in the valuation of their companies.
“Managements biggest contribution for shareholders should be through growth via innovation, not by chasing the pot luck at the end of the rainbow.” mentioned Gonzalo Lopez Jordan. “Companies should not be worried about absorbing additional financing capital in an effort to magnify valuations; Management should rather focus its energy in maneuvering companies through organic growth avenues first.” Added Santiago Steed.
At the end of the day, this shorter financing rounds and higher capital deployments we are experiencing could potentially mean shorter due diligence and longer periods of invested capital, which could substantially increase the risk of an investment.
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 Bloomberg, TPG Said to Lean Against Airbnb Investment at $10B Value, accessed at: http://www.bloomberg.com/news/2014-04-03/tpg-said-to-lean-against-airbnb-investment-at-10b-value.html on April 18, 2014.
 Dealbook, Lyft Raises $250 Million From Alibaba, Third Point and Others, accessed at: http://dealbook.nytimes.com/2014/04/02/lyft-raises-250-million-from-alibaba-third-point-and-others/?_php=true&_type=blogs&_r=0 on April 18, 2014.
 Dealbook, Facebook Raises $16 Billion in I.P.O., accessed at: http://dealbook.nytimes.com/2012/05/17/facebook-raises-16-billion-in-i-p-o/on April 18, 2014.
 Bloomberg, Technology Slump Fuels Concern Startup Values May Follow, accessed at: http://www.bloomberg.com/news/2014-04-16/technology-slump-fuels-concern-startup-values-may-follow.html on April 18, 2014.
 Bloomberg, King Has Biggest Debut Drop Since November Even With Discount, accessed at: http://www.bloomberg.com/news/2014-03-25/king-raises-500-million-in-candy-crush-maker-s-u-s-offering.html on April 18, 2014.
Patagonia Financial Holdings is a private equity firm headed by Gonzalo Lopez Jordan and Santiago Steed .The firm has over $500 million of deployed capital, primarily focused on structuring value-oriented and special situation investments.
Based in Florida, American Regional Center Group LLC (ARCG) was founded in partnership with Patagonia Financial Holdings LLC (PFH) to provide sound and reliable EB-5 investment opportunities for foreign investors and their families who wish to obtain permanent residency in the United States.
Patagonia Financial Holdings is headquartered at 1200 Brickell Avenue, Suite 1950, in the heart of Miami’s Financial District.
For more information, please visit www.patagoniafinancial.com