Why Startups Keep Raising Mega-Rounds of $100 Million (or More)

Silicon Valley is nothing if not an engine for trends, and the latest one? Funding rounds well into the nine digits.

For Slack, the popular workplace chat service, it was a round of $427 million; for car-hailing platform Getaround, it was $300 million; for mobile bulk shopping startup Boxed, $111 million.

Such “mega-rounds,” as they’re sometimes known, were once a rarity but now seem almost commonplace—and they’re not necessarily a wholly positive development, according to investors speaking Wednesday at Fortune‘s Most Powerful Women Next Gen Summit in Laguna Niguel, Calif.

Yes, there are some instances in which the nature of a startup’s business demands enormous amounts of money. Real estate tech, for instance, “is a category where a company needs a lot of funding to get started; same is true for a lot of the fintech companies,” said Connie Chan, general partner at Andreessen Horowitz. “For example, our portfolio company Opendoor, they buy homes and then they resell them. You can’t buy that house unless you have capital to begin with. And so now in consumer, you see a lot of companies where that initial business model actually requires a ton of capital.”

At the same time, Chan added, there are some entrepreneurs “who don’t know how to spend hundreds of millions of dollars and they may lose some discipline in that process.”

Then there’s the winner-takes-all environment to consider, said Maha Ibrahim, general partner at Canaan Partners. With the exception of Uber and Lyft sharing the ride-hailing sector, markets tend to be dominated by a single startup. So “when we have a company like an Instacart in our portfolio or the RealReal…that’s really opening up a market and owning it and clearly leading in it,” she said. “It behooves us to do everything we can to make sure those companies continue to grow and become the de facto leader in the space.”

But there may also be a more ominous force behind the massive rounds, according to Ibrahim. In the last six months, she said, “[We’ve moved] a little along the spectrum of greed and fear, more to the fear side.” 2019 should be a year of IPOs, she added, but it could also be a year when the market “tempers.” As a result, among founders and boards there’s a sense of urgency “to hoard as much capital as you can,” Ibrahim says: “That is one of the reasons—not the only—in the last six months, and I predict in the first half of next year we’re going to see massive more rounds of capital being raised; we’ve certainly seen it in our portfolio.”

Beth Ferreira, general partner at FirstMark Capital, also added a dose of skepticism in assessing the trend. In taking capital from institutions that are writing massive checks, startups are subject to “more bells and whistles and more hooks,” she said. So her firm, which invests early-stage, is coaching founders on the “pluses and minuses of those capital sources.”

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