Ride-hailing start-up Uber plans to raise between $1.5 billion and $2 billion in new funding, which the San Francisco-based company expects will bring its valuation to at least $50 billion, The Wall Street Journal has reported.
But with fellow ride-hailing start-ups including Sidecar and Lyft accumulating so much cash so quickly, it's getting harder for small to midsized upstarts to attract venture capital funding in the shadow of such big names like Uber.
"Big [venture capital] funds want to spend big money. They want to throw $50 or $100 million at a company," said Vivek Wadhwa, a Stanford University fellow and expert in start-ups and entrepreneurship. "They want to invest in the next big thing, not the ecosystem" of start-ups, he said.
Some tech space watchers have also pointed to a possible "accelerator bubble." Accelerator programs offer funding and mentors in exchange for equity stakes. But there are too few high-growth companies, and upstarts have high failure rates, according to a recent note from the Kauffman Foundation that studies entrepreneurship.
The broader concern is Silicon Valley is taking on too much risk, too quickly with lower tangible results. And that could spell trouble when the tech bubble pops.
"These valuations have nowhere to go but down," said Wadhwa. "There's a feeding frenzy among VCs to be a part of the next big thing. For other start-ups, it raises expectations too much—they start racing to raise and spend all the cash they can," he said. (Tweet This)