The number of privately held Silicon Valley start-ups that are worth more than $US1 billion shocks even the executives running those companies.
"I thought we were special," said Phil Libin, chief executive of Evernote, an online consumer service for storing clippings, photos and bits of information.
He started Evernote in 2008 on the eve of the recession and built it methodically.
"A lot of us didn't set out to have a big valuation. We're just trying to build something that lasts," Libin said. "There is no safe industry any more, even here."
But an unprecedented number of high technology start-ups, easily 25, possibly exceeding 40, are valued at $US1 billion or more.
Many employees are quietly getting rich – or at least building a big cushion against a crash – as they sell shares to outside investors.
Airbnb, Pinterest, SurveyMonkey and Spotify are among the better-known privately held companies that have reached $US1 billion. But many more with less familiar names, including Box, Violin Memory and Zscaler, are selling services to other companies.
"A year from now that might be 100," said Jim Goetz, a partner at Sequoia Capital, a venture capital business.
Sequoia counts a dozen such companies in its portfolio. It is part of what Goetz calls "a permanent change" in the way people are building their companies and financiers are pushing up values.
Valuations make us giddy
The owners of these companies say the valuations make them giddy but also create unease. Once $US1 billion was a milestone; now it is also a millstone. Bigger expectations must be managed, and greater uncertainty looms.
Investors and executives point to a number of reasons for the high valuations. Interest rates are low, which makes it easy for private equity companies to take large stakes in companies. Young tech millionaires and wealthy foreigners such as Yuri Milner, the Russian billionaire, have been private investors, too. As each one puts more money into a start-up, it escalates the bidding for the others.
Last month the value of Twitter, which began in 2006, hit $US9 billion, based on an offer for employee shares by BlackRock, a global investment manager. On the first day that Microsoft sold shares to the public in 1986 it was 11 years old and worth just $US778 million. That would be only $US1.6 billion adjusted for inflation.
Pinterest, an online scrapbooking and social networking site with no revenue, became worth $US1.5 billion in less than three years. Amazon.com went public in 1997 after only three years but had a valuation of just $US438 million. And it had almost $US16 million in revenue for the 1997 fiscal year.
Silicon Valley entrepreneurs contend that the price spiral is not a sign of another tech bubble. The high prices are reasonable, they say, because innovations such as smartphones and cloud computing will remake a technology industry that is already worth hundreds of billions of dollars.
In addition, many of the billion-dollar companies, including MobileIron, Pure Storage, Marketo, DDS and SurveyMonkey (which two weeks ago raised $US794 million to reach a value of $US1.35 billion), sell products and services primarily to other businesses.
For every Dropbox, which offers online data storage primarily to consumers and is valued at $US4 billion, there are two unheralded companies such as Zscaler, a provider of online corporate data security, and Palantir, which does predictive data analysis, valued at more than $US1 billion.
Selling to big business is considered less risky than selling to consumers. "There are disruptions everywhere," said Robert Tinker, the chief executive of MobileIron, which makes software for companies to manage smartphones and tablets.
"Mobile disrupts personal computers, a market worth billions. Cloud disrupts computer servers and data storage, billions of dollars more. Social may be one of those rare things that is totally new."
He said that relative to the size of the markets mobile, cloud and social were toppling, the valuations were reasonable.
But most of these chief executives are also veterans of the internet bubble of the late 1990s and confess to worries that maybe things are not so different this time.
Tinker, 43, drives a 1995 Ford Explorer. "If somebody comes to a job interview here in a $US100,000 car, I know he's not hungry," he said. "The reality is, I've taken $US94 million in investors' money, and we haven't gone public yet. I feel that responsibility every day."
Concern is growing that the billion-plus club is filling up with companies that look alike.
"Everyone is saying, 'I have a cloud technology – I should be valued at 20 times my sales'," said Jay Chaudhry, the chief executive of Zscaler. "Some are real but a lot of others are stretched too thin. They'll languish out there."
The nagging fear is that valuations, which are turned into profits only if the company goes public successfully or is bought for a high price, could still plunge.
Groupon, the daily deals site, rejected a $US6 billion acquisition offer from Google in 2010. After going public, it is valued at $US3 billion. Zipcar, a car-sharing service, was worth $US1.2 billion at its initial public offering in April 2011. In January, Avis Budget Group bought it for just $US500 million.
The Facebook warning
Facebook's stock debut, of course, is the greatest valuation warning of all. It was modestly higher on its first day of public trading and down by about half four months later.
Facebook has since recovered somewhat but other executives now call its initial public offering "Faceplant".
The founders of the highly valued companies are old enough to remember past busts, and many shun the bubble lifestyle of fast cars and fancy parties.
Libin, who said he grew up on food stamps as the son of Russian immigrants in Brooklyn, became a millionaire when he sold his first company, Engine5, to Vignette in 2000.
"The company I sold to, there were purple Lamborghinis in the garage. I got into watches," he said. "Maybe a half dozen, nothing over $10,000, but I needed this glass and leather watch winder." Evernote started as the financial crisis hit.
"One night I was almost busted again," he said, "and there was that watch winder on the shelf, mocking me.
"Every job out there is insecure now," he said. "People sell 10 per cent of their stock, and they have an incentive to make the other 90 per cent worth more.
"They are still working but not worrying about what will happen to their home or their kids."
New York Times