The US Securities & Exchange Commission (SEC) has given a social media greenlight to startups seeking to raise money and this week updated rules allowing for use of Twitter and other social media tools to solicit investors.

The Division of Corporate Finance announced that tweets of 140 characters or less are a proper way for a startup to gauge potential investor interest in a stock or debt offering. The posting must include a link to a disclaimer that says the firm isn’t yet selling securities.

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Bloomberg noted that the SEC has been warming up to social media since April 2013, when it approved the use of posts on Facebook and Twitter to communicate corporate announcements such as earnings. Its latest endorsement of social media applies only to companies looking to raise up to $50 million a year.

Firms that use Twitter to solicit investor interest must include a link to a required disclaimer that says the firm isn’t yet selling securities, the SEC said in this week’s announcement.

It’s not clear how many companies will take advantage of the higher fundraising cap. Fewer than 30 offerings were made from 2012 to 2014, when the limit was $5 million, according to the SEC.

This post is from raisemoney.com.

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Venture capitalist and Benchmark partner, Bill Gurley, advised people against “cramming” too much money into startups, such as Uber, Snapchat, and WeWork, at last week’s Goldman Sachs technology conference. Following his speech, Gurley gave even further insight to investing in startups and how the slang word, FOMO, plays into investing.

After speaking about the risks of “cramming” too much money in startups at the Goldman Sachs technology conference last week, venture capitalist Bill Gurley exited the stage.

More than a dozen investors swarmed the lanky partner of Benchmark, eager to speak with him— but few were planning to heed the venture capitalist’s advice. According to Gurley, one man, who represented a large mutual fund, asked, “You don’t want us to invest in this but the big tech stocks are not delivering enough growth and my competitors are getting into these startups, so what are we supposed to do?”

Gurley says he didn’t have a good answer but he wasn’t surprised by the sentiment, which he describes as FOMO, a slang popular among millennials that stands for “fear of missing out.”

It is this infectious FOMO, according to Gurley and other venture capitalists, that has created a flotilla of billion-dollar startups with ever-soaring valuations and mixed financials.

According to The Wall Street Journal’s Billion Dollar Startup Club, there are now at least 73 private technology companies worth more than $1 billion dollars, versus 41 a year ago. Some, such as Uber, the $41.2 billion car hailing app backed by Gurley’s Benchmark, are worth enormous sums. At least 48 companies were valued at $1 billion or more for the first time, and another 23 members moved up the ranking after raising more money.

Many investors are treating these 73 companies as if they were publicly traded, says Gurley. They are investing sums of money usually reserved for IPO offerings and, sometimes, giving away those dollars with the kind of confidence usually associated with investors who’ve perused regulatory filings for detailed financial information. The investors themselves are a blend of traditional venture-capital players and typically public-market investors: hedge funds, mutual funds and banks. They are sort of meeting in the middle, with the venture capitalists investing in later-stage companies than they have historically done, through new growth funds, and the institutional investors getting in before the IPO.

“We’ve been calling this the private-IPO slice,” said David York, managing director of Top Tier Capital Partners, a fund of funds. “The valuation of risk is a public-market thought process versus a private-market thought process.”

Gurley, who has become a vocal critic of irrational behavior in the industry, says he’s also very worried about the pile-up in the “private IPO” market.

He’s worried that venture capitalists’ new bedfellows, such as mutual funds, are too new to venture capital to properly weigh the risks and realize that these billion-dollar companies are not guaranteed home runs.

“This replaces the IPO — but not all these companies are IPO level candidates,” he said. “Would you hand a teenager $200,000?”

According to data collected by The Journal, of the 29 firms that have invested in five or more current billion-dollar startups, only about half are traditional venture-capital firms. The rest are a mix of institutional investors, such as the Dragoneer Investment Group and Tiger Global Management, and strategic investors, such as Intel and Google. Near the top of the list is Tiger with 12 investments in private billion-dollar companies, and T. Rowe Price Group with 11. In this group, Tiger also raised the most money last year, keying up $4 billion, or 12% of all venture capital raised in 2014.

With such financial heavyweights jumping in, many of their peers are wondering: Can I afford to sit out?

It’s difficult to quantify exactly how much money is sloshing around at this level. Several top venture capital firms have raised large growth funds in the past few years, but total contributions from hedge funds, mutual funds and banks is practically immeasurable without knowing how much each invested in particular funding rounds. Whatever the amount, this layer of growth capital could warp prices, venture capitalists say.

“It’s like traffic on the highway, you add just 5% more cars and it slows down traffic considerably,” said Glenn Solomon, a managing partner at GGV Capital. His firm is an investor in four companies in The Billion Dollar Startup Club.

In some ways, Gurley’s firm has benefited from this influx of pre-IPO capital. His firm is an early investor in four companies in the Billion Dollar Startup Club: Uber, Snapchat, WeWork and Jasper Technologies. All four have since raised money from a big public-market investor.

For the entire article from the Wall Street Journal, click here

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As brokerdealers, investment bankers, institutional investors and entrepreneurs “close the books” on 2014, all will agree this has been a remarkable year in which “billion dollar valuations” have seemingly been the norm. Most notably, technological start-ups have enjoyed increasing valuations with each subsequent round of financing from private equity and venture capital firms, albeit many financial industry professionals are wondering whether those valuations can carry over when these private companies embark on initial public offerings (IPOs).

While “Wall Street” protagonist Gordon Gekko coined the phrase “Greed is Good!,” the Broker-Dealers mantra for 2014 was “Funding is Fun!”

Below please find highlights of the WSJ article.

Chinese smartphone maker Xiaomi Corp. is now officially the world’s most valuable tech startup, worth $46 billion—the exclamation point on a year of extraordinary valuations.

Valuations placed on tech startups world-wide stretched to record heights in 2014 and accelerated at an exceptional pace, even when compared with the late 1990s dot-com boom.

Xiaomi is just the latest example. On Monday it raised more than $1 billion from investors, giving it the $46 billion overall valuation. Only Facebook Inc. raised capital at a higher value from private investors, at $50 billion in 2011.

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.

Adjusted for inflation, the current roster of 70 “billion dollar” startups globally is nearly twice as large as the number during the boom years 1999 and 2000.

A “startup,” in this case, is loosely defined as a young, private company backed by venture capital, with overall valuations derived from the price that pre-IPO investors pay for a fraction of the equity.

Surveying the unprecedented valuations in the private market, “I have trouble drawing a parallel,” said Ted Schlein, a general partner at venture-capital firm Kleiner Perkins Caufield & Byers, adding that his firm is trying to exercise “aggressive restraint” as it looks for new investments.

Perhaps more astonishing than the dollar figures was how fast they were achieved. In November, investors paid $1.2 billion for a stake in Uber Technologies Inc. that valued the five-year-old car-hailing service at $41.2 billion, almost 12 times the price set by venture capitalists last year. The valuation of Pure Storage Inc., a vendor of data-storage equipment, tripled to $3 billion in April after less than a year. Slack Technologies Inc. was valued at $1.1 billion in October only a year after releasing its popular work-collaboration product.

In short, 2014 was the year the tech sector went into hyper-drive.

Before this year, only Facebook and Chinese online retailer JD.com Inc. commanded a valuation higher than $10 billion among private companies backed by venture capitalists, according to VentureSource. This year, six startups raised capital at that level or higher.

The prevailing theory behind the investment rush: Technology is overtaking nearly every major industry, from city transportation and hospitality to education and health care. And real businesses are being built, bullish backers say, not the revenue-less startups from those heady dot-com days in the late 1990s, when excitement over the Internet led to a tech-stock bubble that burst in early 2000.

Many of the companies in today’s billion-dollar club, such as Uber, Xiaomi, home-rental site Airbnb Inc., Web storage company Dropbox Inc. and data-mining startup Palantir Inc. are said to be generating tens if not hundreds of millions of dollars annually.

Airbnb, which is seeking to upend the hotel industry, was tagged with a $10 billion valuation in April, about 40 times its revenue of roughly $250 million in 2013. That revenue had doubled from the previous year, people familiar with the matter previously told The Wall Street Journal. Dropbox, also with a $10 billion valuation, had expected sales of more than $200 million in 2013, up from $116 million the year earlier.

Other companies, like messaging service Snapchat Inc. and online scrapbooking site Pinterest Inc., have barely started making money. Investors are betting those companies can capture audiences that will eventually translate into big money, à la Facebook.

Billionaire venture capitalist Peter Thiel , an early investor in Facebook, says on balance the field of startups doesn’t feel overvalued. The sum of billion-dollar-plus valuations in the U.S.—at roughly $160 billion—would still be less than half of Google Inc. ’s $365 billion market cap, he says.

Others are less sanguine.

“Without question in some sectors there is a pricing balloon bubble in late stage,” said Peter Fenton, a partner at Benchmark, an early investor in Uber, Dropbox and Snapchat. “At some point, these companies will be held accountable for their financials.”

The pricing party is being partly driven by the endowments, foundations and pension funds that back venture firms like Benchmark. Low interest rates and the prospect of juicy returns—inspired by success stories like Facebook, Google and Apple Inc. —are encouraging these firms to pour money into venture capital.

Venture firms have raised more than $32 billion this year, up 60% from last year’s total, though still well below the $121 billion (inflation adjusted) raised in 2000, according to VentureSource.

The latest figure, however, doesn’t include the dry powder from mutual funds such as BlackRock, T. Rowe Price and Wellington Management, or from hedge funds and big banks, all of which are bidding up prices.

Andrea Auerbach, a managing director at Cambridge Associates who meets with about 700 venture firms a year and advises foundations and other big institutional investors, says venture capitalists increasingly call her to pitch “pre-IPO funds.” The buzz-phrase conjures memories of the dot-com boom, when investors rushed into tech startups ahead of their initial public offerings. It is a sign, according to Ms. Auerbach, that investors are plowing money into startups based on momentum instead of fundamentals.

“There are managers trying to pursue this tactic—and it’s a tactic, not a strategy—of investing in pre-IPO companies,” said Ms. Auerbach. “There’s a clock on this and they’re running out of time.”

At least 30 companies have gone public in the U.S. with lower prices than they were worth in private stock sales or option grants in the prior 90 days, according to Valuation Advisors, which conducts valuations for private companies. Mr. Fenton of Benchmark sits on the board of business software company Hortonworks Inc., whose bankers cut its $1.1 billion valuation in half in December ahead of its IPO to entice investors. The maneuver worked to a degree—its stock rose 65% in the IPO. But the company, which lost $86.7 million on revenue of $33.4 million for the first nine months of the year, is trading slightly below a $1.1 billion market value.

Some warn that the winds will eventually shift in Silicon Valley and the easy money will end, possibly leading to a trail of destruction akin to the dot-com crash, including company failures and investor losses.

Mr. Fenton, whose firm Benchmark has been closely tracking companies’ spending rates this year, sees reckless behavior as the real devil underneath the big valuation numbers.

“Are we creating a generation of companies whose behavior has been poisoned by easy capital?” Mr. Fenton said.

For the entire story from WSJ, please click here.

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BrokerDealer.com blog update is courtesy of below extracts from 23 Dec NYT DealBook story by William Alden.

Editors note: For those not aware, the notion of “commission-free trading” is often a fallacy and a term that financial industry regulators somehow allow service providers to use, despite Finra’s self-acclaiming focus for cracking down on deceptive advertising. Few brokerdealers offer anything for ‘free’. Those who offer ‘commission-free’ trading for customers typically receive rebate payments aka payment for order flow checks in consideration for routing customer orders to the various electronic exchanges who dangle kickbacks in consideration for brokers delivering orders to their venue.

Andrei Cherny, Aspiration CEO

From Dealbook: “..A number of new financial start-ups are trying to reach younger and middle-class Americans by upending the customary fee structure of traditional brokerage firms and money managers. They are backed by deep-pocketed venture capital investors — and even celebrities like the rapper Snoop Dogg — who are wagering that these upstarts can challenge the Wall Street establishment…

Aspiration, a start-up wealth manager on Sunset Boulevard here, which had its official debut last month, is asking customers to pay whatever they think is “fair.” That can be as much as 2 percent of their assets, or as low as zero. Reflecting its high-minded goals, the company has also pledged to donate 10 percent of its revenue to charity.

Robinhood, a new brokerage firm based in Palo Alto, Calif., whose founders were inspired by the Occupy Wall Street movement, introduced an app this month that lets customers trade stocks without paying commissions. (The firm plans to make money by offering margin loans and by collecting a portion of the interest earned on customer money invested in money market funds.)

Big banks and brokerage firms haven’t been sitting still. Charles Schwab, for example, recently said it would introduce an automated investment service that doesn’t charge advisory fees. But many are constrained by new regulations or their own inertia. The public’s persistent skepticism of these institutions in the wake of the financial crisis hasn’t helped, either.

Some industry experts have voiced skepticism about the viability of the new business models, including those of Aspiration and Robinhood. But venture capitalists have been happy to bet that technology-focused start-ups can offer more appealing products for buying stocks or managing savings.

Aspiration has raised $4.5 million from investors including Jeff Skoll, the first president of eBay, and Joseph N. Sanberg, a former managing director at the hedge fund Tiger Global Management. Snoop Dogg and the actor Jared Leto recently invested in Robinhood, joining venture capital firms like Andreessen Horowitz that have helped the company raise a total of $16 million.

“There’s room for an investment firm with a conscience, at a time when Wall Street is facing this enormous level of distrust,” said Andrei Cherny, 39, Aspiration’s chief executive, who has a background in politics, having worked as a state prosecutor in Arizona and earlier as a speechwriter in the Clinton White House. “It should be incumbent on us to prove to our customers we’re doing a good job for them. If we can’t prove that, they shouldn’t pay us.”

Two recent initial public offerings of finance-related companies have helped amplify interest in the sector. Lending Club, which connects individuals to potential lenders, and OnDeck Capital, which makes loans to small businesses, had successful stock market debuts this month, creating windfalls for their backers.

For the entire DealBook story, please click here.

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