Venture Capital Flowing Again, Valuations Skyrocketing

From the latest CrunchBase data, it seems that VC is alive and well. Venture capital firms invested $12.8 billion in Q1, which is more than double the $6 billion in venture funding that was doled out in Q1 2009. According to CrunchBase, 1,201 companies received expansion capital during the last three months, and while this number is 5% down from Q4, it seems like VC has rebounded strongly from the recession.

Further, valuations seem to be ballooning again, with pre-revenue Blippy (which I wrote about last month) commanding a $38 million valuation and still-in-beta Quora being pegged at $86 million. TechCrunch gathered three of the biggest names in VC to discuss. According to Marc Andreessen (the co-founder of Netscape and Ning), Silicon Valley produces only 15 or so startups a year that surpass $100 million in revenue, and once venture capitalists stumble upon a big idea or disruptive technology, buzz builds and valuations get bid up. At that point, Andreessen says that valuation is secondary to getting in the deal.

While Silicon Valley venture capitalists are probably adept at identifying startups with lots of potential, I also think these hot startups that eventually grow into $100 million+ companies are examples of self-fulfilling prophecies. If the idea is good, the vision big, and the team talented, and if the company gets some initial buzz, things tend to snowball. Top VCs started bidding up the valuation, and suddenly, you have virtually limitless access to capital along with the best-networked people on your board, backing your company, getting you the most skilled salespeople, marketers, and developers, getting you mindshare, opening doors to partner and customer relationships, and introducing you to potential acquirers.

Whatever the reason, times are good for both VCs and entrepreneurs. Hopefully they keep getting better.