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Summary:

In Silicon Valley, there’s an elite group of companies whose valuations defy gravity. These are companies with momentum, whether real or perceived: Zynga, Twitter, Facebook and Foursquare. Add Groupon, RadiumOne, Tumblr, Cloudera and RightScale to this list. Plus, they are all in the money.

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This is the third in my “Letter from Silicon Valley” series, in which I outline what I see as some of the major shifts happening in the Valley. Previous posts in the series were about the angel investment boom and the current talent crunch.

When it comes to investments, it’s great to be an early stage start-up, thanks to a sharp increase in number of angel investors and venture capitalists loosening their purse strings. On the other extreme, however, are companies looking for Series B funding. If they don’t have massive momentum or are still proving their business model, they can pretty much forget about getting funded.

Then there is an elite group of companies whose valuations defy gravity. These are companies with momentum, whether real or perceived. Zynga, Twitter, Facebook and Foursquare were able to cash in on this momentum and raised staggering amounts of money. Now we are beginning to see a new crop of companies that are getting traction at gigantic valuations. Cloudera, which raised $25 million earlier this week is being valued over $100 million, and RightScale is being valued at between $150 and $200 million.

Let’s add Groupon, RadiumOne and Tumblr to this list. Multiple sources tell me that Tumblr is looking to raise a big round of funding, mostly to finance its growth. The company, which so far has raised $10 million, recently surpassed a billion page views a month and is still growing at breakneck speed. Founder/CEO David Karp has been making the rounds on Sand Hill Road, and it’s a good time for him to go hit up the fat cats for dollars. Tumblr has been getting a lot of laudatory press with some outlets comparing them to Facebook.

Similarly, RadiumOne (formerly gWallet) — an advertising-focused company started by serial entrepreneur Gurbaksh Chahal – is looking to raise a substantial amount of money. The company is rumored to be seeking $50 million on a pre-money valuation of $200 million and has been in talks with private-equity groups for this round of financing. The company, which changed its focus to social re-targeting, recently snagged Bill Lonergan, formerly of Offerpal and BlueLithium, as the CFO of the company.

Like RadiumOne, several sources have indicated that Groupon — one of the fastest growing e-commerce companies — has been meeting with private-equity firms and others to raise what is being described as a “massive” amount of money. The Chicago-based company is on track to achieve $600 million in revenues during 2010, according to published reports, and was said to be valued at $1.35 billion earlier this year when it raised $250 million. Yahoo apparently made a multi-billion dollar offer for the company, but that wasn’t enough to get the deal done.

Whether it’s Cloudera or Groupon, these are companies that are near-sure things in a technology landscape overrun with thousands of little companies, many scrambling for attention. For late-stage investors, that’s good enough to loosen their purse strings.

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  3. [...] you’re growing, the subsequent rounds of funding are going to follow. (As I wrote earlier, this was the main reason Foursquare, Tumblr, and RadiumOne have managed to line up their coffers.) [...]

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