Have Startups Seen Their Heyday?

There is a growing debate on Wall Street over whether or not U.S. equities have become dangerously overvalued. This month, Federal Reserve Chair Janet Yellen weighed in on the issue, saying that the bank does see markets as overvalued, prompting many traders to begin worrying.

Tech Bubble?

However, with the Fed considering a rate hike before the end of this year, some analysts say the golden age in Silicon Valley is about to come to an end.

Related Link: Does A Tech Bubble Exist

Traders Turn To Startups

The Fed's accommodative policy has kept borrowing rates in the U.S. near zero, which in turn has given investors license to make riskier bets and prompted many to invest their cash in the tech space in order to get a return.

For that reason, startups have seen major injections of cash from mutual funds who are interested in getting in on the ground floor. Hedge fund managers have begun to pay 15 to 18 times a company's projected sales in funding rounds over the past five years rather than the 10 to 12 percent that used to be the norm.

Reminiscent Of The Dot-Com Bubble

Many worry that the growing amount of money being funneled into the tech scene could be reminiscent of the 2000 dot-com bubble.

Investors could be taking unfounded risks in search of a lofty payout, something that may come back to haunt them when the Fed rate hike takes place. If the market pulls back, some of those companies could lose up to a third of their value.

Related Link: Fed In The Spotlight: Rate Hike Bets Are Pushed Back

Better Businesses

However, others say the credibility of tech startups will keep markets from suffering.

The companies whose fundraising efforts have been successful typically have legitimate cash flows and a sound balance sheet, unlike the Internet-based companies of the '90s who were spending more than they were taking in.