Technically, Jet.comdoesn’t exist yet. Visit the homepage and you’ll see some vague information about what Jet is going to do, as well as when it’s going to launch (“Very soon.”)
But what’s surprising about Jet.com is that it has already raised a huge amount of money. Investors have put in $US220 million (£142 million) before it has even launched.
That might seem insane — how do they know it’s going to work? A lot of people call out monster deals — such as $US220 million in funding for a shopping site that’s not launched yet — as evidence of a tech bubble.
Jet.com investor Scott Friend is well aware of just how crazy the amount of money invested in the company is. “When you describe the amount of capital and the context of it being pre-launch, it sounds absurd,” he told Re/code.
He stressed that you need to look at the context of the deal to understand why Jet.com is so valuable.
Jet.com CEO Marc Lore has a track record of building internet shopping companies that become very, very successful. He started Diapers.com, as well as Soap.com, and sold the sites to Amazon for $US545 million (£352 million) in 2011. Those sites were all about selling a wide range of products cheaply, with Amazon drawn into a price war with Diapers.com. So when Lore says to investors that he’s going to build another e-commerce site that’s going to use a subscription model to make products cheaper, he has some credibility.
What Lore wants to build is a version of Amazon that uses dynamic pricing. If you live closer to a warehouse, then the items you order will be cheaper. And Jet.com also aims to offer lower prices than Amazon, using its $US50 yearly subscription to offset prices.
It’s not just Jet.com that has raised money before it properly existed, either. You could say the same about Uber too.
Right now, Uber is known for being an app that connects drivers with passengers who want to go somewhere. It looks at that demand, and matches people up. If lots of passengers want rides then it puts the price up. But that’s not all that Uber wants to be. It has launched experimental delivery services, and is testing out a food delivery service in Los Angeles and Barcelona.
Don’t think these kind of valuations just apply to giant companies like Jet.com and Uber — tiny startups receive big money because they look to the future.
When tech investors plough money into a company, they’re looking at what comes next, where the business is going.
Take Yo, for example. It’s an app that lets you send the word “Yo” to your friends. Yo received funding at a $US5-10 million valuation. That seems insane, but spend an hour with Yo CEO Or Arbel and he’ll explain his upcoming deals with content providers, the idea that Yo can be used by brands to advertise content, and you might come away convinced (although perhaps not willing to invest millions).
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.