Technology start-ups spent $44bn on advertising and cloud computing from Facebook, Google and Amazon last year, according to new estimates that underline the growing economic clout of venture capital-backed businesses.
Research by the hedge fund Bridgewater found that spending by private tech start-ups made up about 10 per cent of the revenue of tech giants and accounted for more than 0.4 per cent of global economic activity.
That figure is close to the peak of roughly 0.6 per cent reached during the tech bubble of 2000 and will stoke concerns of overheating in private markets, where deep-pocketed backers are subsidising frequently unprofitable tech business models.
“Though the numbers are still small, the shift of funds in this direction has been fast,” Bridgewater said in a research note. “And though the climb has not been quite as stratospheric as in the tech bubble, we see more reason for a continuation today.”
The Connecticut-based group indicated that spending by tech start-ups on advertising and cloud services greatly exceeded their outlays on run-of-the-mill operating expenses.
The $44bn they spent on Amazon Web Service, Google and Facebook advertising compared with roughly $9bn spent in 2013, which accounted for about 6 per cent of the tech giants’ revenues.
Representatives for Bridgewater declined to comment. Amazon and Facebook did not reply to questions about the research, and Google declined to comment.
Research by Bridgewater, which was built into the world’s biggest hedge fund by founder Ray Dalio, is read closely by investors and policymakers for signs of shifts in its thinking on global markets.
The hedge fund, which has about $160bn under management, said falling interest rates since the 2008 financial crisis have encouraged venture capitalists to place ever larger bets on early-stage companies.
“The decade of falling discount rates has lowered the hurdle for success, especially for investments with payouts far in the future,” Bridgewater wrote.
Investors now value almost 400 companies at more than $1bn, according to data from CB Insights.
Venture capital and private equity funds entered the year with $1.1bn in cash yet to be spent, according to Pitchbook Data.
Investments from the likes of SoftBank and Chinese conglomerate Tencent have exacerbated worries about a bubble in private markets. This week SoftBank-backed WeWork was forced to slash the valuation target for its planned initial public offering.
Bridgewater said that every dollar invested in venture capital goes “nearly 100 per cent” towards gross domestic product in “a matter of a few years”.
Pure Alpha, Bridgewater’s flagship fund, suffered one of its worst first-half performances in decades this year after falling 4.9 per cent through June. Mr Dalio has recently warned that rising taxes, falling interest rates and central bank-financed government deficits could spark a “paradigm shift” in the global economy.