Benner on Tech: Startup Winners and Clickbait's King

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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People are Talking About…

With a new $45 billion price tag, the Chinese mobile-phone maker Xiaomi  has approached the record high for a private company valuation (a cool $50 billion set by Facebook in 2011). No doubt the valuation is a sign of exuberance, and we’ll likely spend 2015 debating whether or not it’s irrational. It’s a sign that investors like tech companies that generate revenue. (Other companies with sky-high valuations, such as Uber and Airbnb, reportedly generate hundreds of millions in sales.)

It’s also a sign that recent economic trends -- few of which are related to technology per se -- are still keeping the sector buoyant. The U.S. remains one of the strongest, safest places for global investors to put money to work, and within the U.S., the tech sector has generated high returns for investors. Low interest rates have pushed investors into higher-risk assets, including startups and growth stocks, so more types of investors are chasing tech-related returns. Those same investors have been forced to rebalance their portfolios as the value of their stock portfolios climbed, which in turn put more money into the hands of venture capital firms, and thus more money into the hands of entrepreneurs.

With so much money pouring into the tech world, is it so surprising that private company valuations are soaring? The Wall Street Journal’s Evelyn Rusli points out that world-wide, startup valuations hit records in 2014 and grew at an astonishing pace as investors of all stripes clamored for a piece of the private-company pie.

This year, venture capitalists, mutual funds and big banks bestowed valuations of $1 billion or more on about 40 startups world-wide, doubling the number of such companies at the start of the year, according to research firm Dow Jones VentureSource.

I’d add one more factor to the boom in private-company valuations that we saw in 2014 and that will likely continue for a quarter or two more: bifurcation.

VCs and entrepreneurs have long said that we’ll soon see a shake-out in the private-company world as winners emerge among the dozens of lookalike mobile security, messaging, enterprise software and robo-financial advisory startups. When it comes to funding in 2015, the haves and the have nots will be more pronounced.

Part of the reason an elite group of startups is going into what Rusli describes as fundraising hyperdrive is because investors surveyed the field and started placing bets on the real winners and hedging their bets on the losers. People say that even among the ranks of the richly funded, we could see some companies lose favor. That places more competitive pressure on VCs to get into Uber and Snapchat rounds, the financing rounds we all read about. Those companies perceived to have less promising futures may start to feel the pinch, even as money continues to wash over Silicon Valley. 

Today’s must read: USA Today has had an outstanding series of stories on diversity (or lack thereof) in the tech industry. Most recently, reporters Jessica Guynn, Paul Overberg, Marco della Cava and Jon Swartz crunched the numbers and found that minorities are underrepresented in Silicon Valley, even in non-technical jobs like sales and administration.


Founder liquidity has been a hot topic lately and venture capitalist Fred Wilson has jumped into the conversation. He doesn't condemn cashing out altogether, but he warns that it's the folks "who work at the company that make it tick and if they are not deeply invested in the business, you have a recipe for failure.”

Semil Shah, of the fund Haystack, examines the seed investments that he made via AngelList syndicates, and he talks about adverse selection, closing times and founders.  

Instacart closed a $210 million funding round that values the company at around $2 billion, Re/code reports. Just six months ago, the grocery-delivery company was valued at $400 million.

Ehang, the maker of the Ghost drone, raised $10 million, VentureBeat reports.  

People and Personnel Moves

Emerson Spartz is the 27-year-old king of clickbait who built his first website, MuggleNet, when he was 12, according to a recent New Yorker profile.

When I asked him what he did for a living, he replied, “I’m passionate about virality.” I must have looked confused, because he said, “Let me bring that down from the thirty-thousand-foot level.” The appetizer course had not yet arrived. He checked the time on his cell phone and cleared his throat. “Every day, when I was a kid, my parents made me read four short biographies of very successful people,” he began.

On this occasion, I was the only person listening to his speech, but he spoke in a distant and deliberate tone, using studied pauses and facial expressions, as if I were a video camera’s lens. When he got to the part about virality being a superpower—“I realized that if you could make ideas go viral, you could tip elections, start movements, revolutionize industries”—I asked whether that was really true.

“Can you rephrase your question in a more concrete way?” he said.



* The company’s products accounted for 51 percent of all new device that were activated worldwide in the run-up to Christmas Day, according to the (Yahoo-owned) analytics company Flurry.  Over the same period, from Dec. 19 - 25, Samsung accounted for 18 percent of new device activations.


* A privacy lawsuit alleges that the company is scanning private messages for content that can be useful to advertisers, in violation of California privacy statutes. A judge just denied in part Facebook’s motion to dismiss the suit.

* The company gets its very own Year in Review, thanks to Quartz. “In October Mark Zuckerberg went to India and met the prime minister.” In October, I probably took a Buzzfeed quiz to ID my "Dazed and Confused" character.


* Obsessives rejoice! Ars Technica has published its bi-annual Google Tracker, a comprehensive roundup of all the news, rumors, projects and initiatives happening in Mountain View.

* “The Interview” is the top-grossing movie of the year for Google, which streamed the film on Google Play and YouTube, says Bloomberg Businessweek. For what it’s worth, the film only generated about $15 million in online sales.


* The company is building a new browser, codenamed Spartan, that it will roll out with Windows 10, ZDNet reports.

Cybercrime Blotter

Revenge hacking might be a thing. Bloomberg says that some private-sector companies are trying to break into hackers’ networks to get their data back or take down enemy systems.

Domestic abusers are using surveillance software to spy on their partners and exes, a trend that the Independent says has reached “epidemic proportions” as advocacy groups report a dramatic rise in the use of spyware.

Who’s watching you? That’s the question investigative journalist Julia Angwin asks in the excerpt from her new book, Dragnet Nation.

We are living in a Dragnet Nation — a world of indiscriminate tracking where institutions are stockpiling data about individuals at an unprecedented pace. The rise of indiscriminate tracking is powered by the same forces that have brought us the technology we love so much — powerful computing on our desktops, laptops, tablets, and smartphones.

Media Files

The Washington Post may license the software that it developed for its website, the Financial Times reports.

“The Interview” got mixed reviews from U.S. viewers, but Chinese viewers are giving the film two thumbs up, the New York Times reports.

Serial season 1 is over, but the story hasn’t stopped. Jay Wilds, the key witness for the prosecution, talks to the Intercept about the show and about what happened the night he discovered that Hae Min Lee had died.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.