Are 'public market' funds driving startup values too high?

Spencer Brown / SFBT File 2010

Cloud storage and collaboration startup Box is one of the Silicon Valley companies that has taken money recently from a "public market" firm. "Growth investor" General Atlantic and hedge fund Coatue Management LLC kicked in more than $100 million of the $150 million raised by co-founders Dylan Smith, left, and Aaron Levie.

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Cromwell Schubarth: Senior Technology Reporter- Silicon Valley Business Journal; Email | Twitter | Google

A wave of new money is pouring into Silicon Valley startups, with hedge funds and private equity firms diverting cash from the public market companies they usually back.
Coupled with the record number of billion-dollar valuations, this is causing some to worry that startups could be driven to go public at unsustainable levels.
With Facebook's rapid descent last May from its lofty IPO price fresh in everybody's minds, that fear is understandable.
But the Menlo Park social networking giant was backed by traditional angel and venture backers, not the new public market.
And in the end, the entry of PE firms and hedge funds and the billion-dollar baby boom could be all about startups that don't want to go public as quickly as they used to.
An article in the Wall Street Journal on Friday ran down a number of recent Silicon Valley deals that are part of the trend, including:
SurveyMonkey: Tiger Global Management LLC helped lead the $444 million equity portion of SurveyMonkey's $800 million recapitalization in January. Tiger Global's main business is managing hedge funds and private equity funds but it has actually been investing in venture-backed startups for a number of years, as well.
Evernote: The note-taking app startup in November raised $85 million from asset-management firms AGC Equity Partners/m8 Capital and Valiant Capital Management at a reported valuation of about $1.15 billion valuation.
Box: "Growth investor" General Atlantic kicked in $100 million of the Los Altos online storage and collaboration company's recent $150 million round of fundraising at a reported valuation of more than $1 billion. Coatue Management LLC, a New York-based hedge fund, also participated in this round.