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What makes start-ups hot and worth billions? User-friendly experiences

Hot start-ups like Airbnb and Uber have garnered attention for disrupting their respective industries, and pocketing high valuations in the billions.

But given the two upstarts' user experience for consumers, some tech experts are defending the recent valuation math.

"When I go out on the streets of New York and I take my Uber rather than taking a yellow cab ... that is the kind of personal-to-grand scale that makes me feel like, 'Yes that valuation or a high valuation is worth it,'" says Turi McKinley, design director at Frog Design, a product strategy and design firm.

McKinley was among a user experienceor "UX"panel this week at the MIT Enterprise Forum of New York City, which supports entrepreneurs and tech-run ventures.

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Uber, which enables riders to order cars with the touch of a button, is valued at several billion.

Overall, venture capital financing earlier this year grew to quarterly highs not seen since 2001, some $13.9 billion across 974 deals, according to tech data firm CB Insights.

While admitting some valuations are indeed eye-popping, Beverly May, executive director of the forum's UX Awards, said in some aspects the valuation numbers aren't off.

"I can say without hesitation that UX has been a core part of why their valuation is as high as it is, and why they have retained the customer adoption that they have," May said.

Nailing user experience for your start-up

The Uber app on a mobile phone
Getty Images
The Uber app on a mobile phone

Start-ups rightfully focus on getting their ventures off the ground. Entrepreneurs can lose focus on why paying attention to consumers' experiences with products and services can go a long way toward building brand loyalty. Fast and accurate feedback also helps to cultivate and broadcast positive buzz for start-ups, said McKinley of Frog Design.

"I think one of the things that many successful companies are able to do, they find a channel to get people's feedback throughout the [product] design process, the launch process and their funding," May said.

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So how can start-ups create the right user experience foundation for their products? Investing heavily in technology infrastructure and user-friendly interface are good places to start.

While some may disagree, a growing number of consumers prefer less human interaction. Overall, technology solutions are outpacing human-based solutions in product development, said Scott McDonald, managing director of Modus Associates, a consultancy that focuses on digital design and innovation.

"Of course there is still a need for personal advice," McDonald said. "But there are areas where the technology is actually performing better for people. It's changing the way those services are delivered, especially for young people."

What VCs are looking for

McDonald points to financial planning start-ups such a Betterment and Wealthfront, which are getting millennials interested in saving, money management and investing.

"They're moving away from the personal touch, towards formulas of algorithms that are actually performing better and creating better portfolios than financial advisors can," McDonald said. Famed investor Warren Buffett is a big fan of low-cost index funds as investment vehicles—as opposed to manager-steered funds that also come with hefty fees.

And while the value of investing in technology infrastructure and user experience may sound wonky, deep-pocketed venture capitalists are paying attention.

VC funds including the Designer Fund specifically are throwing cash behind start-ups co-founded by user experience designers, further emphasizing the importance of UX design in today's tech products and start-ups, May said.

And savvy start-ups are realizing a solid commitment to user experience design—which can be reflected in hiring decisions and in the company board—are helping to attract potential investors. In other words, thin ranks of user experience professionals at a new small company might prompt an investor to pass, industry watchers say.

"We see VCs who are prioritizing designer-led start-ups," May said. "You see that with young start-ups, who make sure they have designers as one of their co-founders, and you see that with enterprise companies, who have really started to make big initiatives into overhauling their core product line with a UX focus," May said.