<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/54dd1a8eeab8ea74270a6c67-1200-706/ap676819776483.jpg" border="0" alt="Airplane crash drill"><p class="source"><span>AP</span></p></img></div><p></p></div></div>From on-demand groceries to disappearing photos, startups are raising a lot of money. And valuations have skyrocketed. </p><p>When Instagram was acquired by Facebook for $1 billion in 2012, the number was jaw-dropping. WhatsApp's $19 billion acquisition two years later made Instagram's sale seem cheap. Now, c<span>ompanies like Uber are raising $1 billion+ rounds before they even hit the public markets.  </span></p><p><span style="line-height: 1.5em;">In these frothy times, investors are throwing eye-popping sums at early-stage companies.</span></p><p><span style="line-height: 1.5em;">On Wednesday, news broke that Jet.com, a startup that wants to compete with Amazon, <a href="http://www.wsj.com/articles/jet-com-raises-140-million-led-by-bain-capital-ventures-1423696950">raised $140 million at a $450-600 million valuation</a>. Before that, it raised $80 million. </span></p><p><span style="line-height: 1.5em;">The catch: it hasn't launched yet. </span></p><p><div class="KonaFilter image-container display-table float_left"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/54887c00eab8ea1f278b456a-800-600/marc lore.jpg" border="0" alt="Marc Lore"><p class="source"><span><a href="http://www.quidsi.com/about.qs">Quidsi</a></span></p><p class="caption">Marc Lore, founder of Jet.com</p></img></div><p></p></div></div></p><p><span style="line-height: 1.5em;">So that's $220 million for a startup that has no minimum viable product, no proof of concept, and isn't open for business.</span></p><p><span style="line-height: 1.5em;">What. The. Heck. </span></p><p><span style="line-height: 1.5em;">More specifically, <em>what the heck are investors thinking?</em></span></p><p><span style="line-height: 1.5em;">Sometimes, big early bets work out. Tesla and Workday both raised tens of millions early in their lifecycles; now they're publicly-traded companies. Wayfair and Github raised more than $100 million during their first rounds of financing, but they bootstrapped their ways to proven business models first. Oscar, </span><span style="line-height: 1.5em;">a year-old health-insurance startup, also raised $80 million pre-launch. </span></p><p><span style="line-height: 1.5em;">Most often, raising that much money during a startup's infancy is the kiss of death. Founders spend the money carelessly and there's no urgency to figure out a business model.</span></p><p><span style="line-height: 1.5em;">Take Fab for example. Within its first year, the e-commerce startup </span><a href="http://www.businessinsider.com/how-billion-dollar-startup-fab-died-2015-2">raised over $150 million</a><span style="line-height: 1.5em;">. One year later, it spent almost all of the cash and </span><a href="http://www.businessinsider.com/fab-ceos-memo-during-the-startups-collapse-2015-2">realized it had no sustainable business model</a><span style="line-height: 1.5em;">. Airtime, Sean Parker's video startup, </span><a href="http://www.businessinsider.com/airtime-the-most-star-studded-startup-launch-ever-2012-6">raised $33 million and had a celebrity-filled launch</a><span style="line-height: 1.5em;">, then flopped. Clinkle boasted the </span><a href="http://www.businessinsider.com/inside-story-of-clinkle-2014-4">largest seed round in Silicon Valley history at $25 million</a><span style="line-height: 1.5em;"> then failed to launch its payment product.</span></p><p><span style="line-height: 1.5em;">So again, </span><em style="line-height: 1.5em;">what are Jet.com founder Marc Lore, and his investors thinking?</em></p><p><span style="line-height: 1.5em;">One person with knowledge of the Jet deal attempted to explain investors' logic.</span></p><p><span style="line-height: 1.5em;">There are two types of startups, this person reasoned: consumer products, and industry-changing products. Consumer products like Instagram, Snapchat and Twitter don't need much money when they launch; they just need to create a minimum viable product. Later, while they scale, they need tons of money to maintain servers, hire top talent, and sustain growth. After they scale, they figure out how to monetize.</span></p><p><span style="line-height: 1.5em;">Industry-changing startups, like ones tackling healthcare, education or financial services, require gobs of money up front. </span><span style="line-height: 1.5em;">Jet.com's goal is to innovate on product prices. Its technology adjusts</span><span style="line-height: 1.5em;"> prices in real-time based on where the user is located, and how he or she bundles items in online shopping carts. Both of these factors can decrease shipping costs, which enable Jet to offer prices that compete with, and are ideally lower, than other retailers like Amazon. </span></p><p><span style="line-height: 1.5em;">"With Jet, they are raising a tremendous amount of money so they can build the infrastructure to support their model," this person said. "There is a tremendous amount of risk involved but it takes capital to try and compete with Amazon."</span></p><p><span style="line-height: 1.5em;">Marc Lore, Jet.com's founder and CEO, says the $140 million round he just raised was "opportunistic." Fundraising is usually a long, distracting process for startups, and now he doesn't have to worry about that after Jet launches.</span></p><p><span style="line-height: 1.5em;">"Dilution is the downside, but you have the capital ready to go," Lore explains. "I don't want to be distracted when the business starts to take off the way we believe it will. Having the money puts us in a great position. We're not just going to spend it in a different way than we would [if we didn't have it]. It's just to support the growth that we believe will happen."</span></p><p><span style="line-height: 1.5em;">Still, it's hard to think of any startup that's raised gobs of money before launch and survived.</span></p><p><span style="line-height: 1.5em;">Andy Weissman, a partner at Union Square Ventures in New York, doesn't think generalizations work with startups, even one as mind-boggling as Jet.com.</span></p><p><span style="line-height: 1.5em;">"Probably the only thing I've learned about startups is that most attempts to generalize fails," Weissman tweeted. "The harder question then is to figure out what are outliers and what are patterns later to match."</span></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/why-men-cheat-affair-love-sex-psychotherapist-2015-1">Research Reveals Why Men Cheat, And It's Not What You Think</a></h3>        <div>            <div>    <script src="http://player.ooyala.com/v3/6e12e8b3387a44daacfb73afba25a76e"></script>    <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="9vdnlycjo8Di2vj5XaYNQCb3Cc2NYbee" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>    <script>    if (typeof RunFunctions === 'undefined') { var RunFunctions = []; }     RunFunctions.push(function()    {         var ooyalapopvideo = OO.Player.create('ooyalaplayer_popvideo', '9vdnlycjo8Di2vj5XaYNQCb3Cc2NYbee',{ autoplay: 'false' });     });    </script>    <noscript><div>Please enable Javascript to watch this video</div></noscript></div>        </div>        <script>(function() { function createPlayer() { OO.ready(function() { RunFunctions.forEach(function(ooyalaFunction) { ooyalaFunction(); }); RunFunctions = [];}); } createPlayer(); }()); </script>    </div>

Investors just told this startup it was worth $450 million. Now it might be doomed.

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/54451d78ecad04b9057efb87-1200-600/larry-page-not-bad-15.jpg" border="0" alt="Larry Page not bad "><p class="source"><span>AP</span></p></img></div><p></p></div></div>Last week, Google reported slower-than-expected revenue growth during the third quarter.</p>
<p>Investors punished the company with a stock sell-off, and now Google shares are trading at $511.17, well below a 52-week high of $604.83.</p>
<p><a href="http://www.businessinsider.com/google-growth-is-at-its-lowest-point-in-6-years-and-analysts-cant-figure-out-why-2014-10">In a story on the disappointing earnings, BI's Jillian D'Onfro pinpointed Google's problem</a>: its big business, search advertising, isn't growing as fast as it used to. In fact, it hasn't grown so slowly since six years ago.</p>
<p>To be very specific: people didn't click on Google search ads as much as everyone thought they would during the quarter.</p>
<p>"Growth in paid clicks didn't accelerate as much as analysts expected it to: 17% year-over-year versus expectations of 22% year-over-year," wrote D'Onfro.</p>
<p>Here are three reasons that's happening.</p>
<h3>Reason #1: Google search is the best money-making business on the Web, but the Web is slowly becoming irrelevant thanks to mobile.</h3>
<p>Here are two charts that illustrate this point. <span style="font-size: 15px; line-height: 1.5em;"><a href="http://nonchalantrepreneur.com/post/82021244324/the-decline-of-the-mobile-web">We first saw them in a post by Andreessen Horowitz partner Chris Dixon.</a></span><span style="font-size: 15px; line-height: 1.5em;"> </span></p>
<p>The first chart shows what you already know, that mobile users surpassed desktop users this year:</p>
<p><span class="KonaFilter image-container display-table"><span class="image"><img src="http://static5.businessinsider.com/image/54217a226bb3f7d548257068-1056-735/desktop%20versus%20mobile%20users%20in%202014.jpg" border="0" alt="desktop versus mobile users in 2014" /></span></span></p>
<p>The second chart shows that, increasingly, mobile users prefer to connect to the internet via apps rather than the mobile web.</p>
<p><span class="KonaFilter image-container display-table"><span class="image"><img src="http://static2.businessinsider.com/image/54217aa26da811780cd19036-998-821/apps%20versus%20mobile%20web.jpg" border="0" alt="apps versus mobile web"><span class="source"><span><br /></span></span></img></span></span></p>
<p><span style="font-size: 15px; line-height: 1.5em;">Looking at those two charts, we can perhaps infer the following: The world is moving away from desktop computers. As the world does this, Web usage is growing more slowly. </span><span style="font-size: 15px; line-height: 1.5em;">As overall Web growth slows, Google Search growth slows - and so do clicks on search ads.</span></p>
<h3>Reason #2: People are more comfortable going straight to Amazon to search for products to buy. </h3>
<p>A couple years ago, we met with several Google executives and learned that the company keeping them up at night wasn't Facebook and it wasn't Microsoft; it was Amazon.</p>
<p>Google is a search company, but the searches that it actually makes money from are the searches people do before they are about to buy something online. These commercial searches make up about 20 percent of total Google searches. Those searches are where the ads are.</p>
<p>What Googlers worry about in private is a growing trend among consumers to skip Google altogether, and to just go ahead and search for the product they would like to buy on Amazon.com, or, on mobile in an Amazon app.</p>
<p>There's data to prove this trend is real. According to ComScore, Amazon search queries were up 73% in 2012. But it makes intuitive sense doesn't it?</p>
<p>Why go through these steps …</p>
<ul>
<li>Open a Web browser on your phone.</li>
<li>Google search "bike gloves"</li>
<li>Analyze some text links.</li>
<li>Click on one to go to a product page on some e-commerce store.</li>
<li>Click to add the item to your cart.</li>
<li>Input your credit card.</li>
<li>Input your address.</li>
<li>Select what kind of shipping you would like to pay for.</li>
</ul>
<p>… when you can just …</p>
<ul>
<li>Open the Amazon app on your phone.</li>
<li>Search Amazon for "bike gloves."</li>
<li>Click one button to buy the product with your usual credit card and have it shipped to your normal address, for free.</li>
</ul>
<h3>Reason #3: Google is way behind in the best money-making business on mobile, monetizing streams.</h3>
<p><a href="http://www.businessinsider.com/facebook-q2-earnings-2014-7">Facebook generated $1.8 billion in mobile ad revenues</a> during the second quarter, 151% over the same period the year prior. <a href="http://www.businessinsider.com/twitter-q2-earnings-2014-7">Twitter generated $255 million</a> in mobile revenues during the quarter.</p>
<p>Both Twitter and Facebook are, mostly, making all the money by selling ads against "streams" in their mobile apps.</p>
<p>Google also sells mobile ads.</p>
<p>But it doesn't own a stream to sell ads against.</p>
<p>Meanwhile, Facebook and Twitter keep adding more streams to sell ads against.</p>
<p>Facebook bought Instagram and WhatsApp. Twitter bought Vine.</p>
<p>Facebook and Twitter are also both taking what they've learned about putting ads their own streams to help other app makers sell ads (and taking a cut, of course).</p>
<p>It's reminiscent of how Google made a bunch of money selling ads against its own content - search results - and then and then it took those ad-selling techniques and spread them all over the Web, to great profit.</p>
<p>Maybe Google's growth is slowing because it's not doing the same thing in mobile, while Facebook and Twitter are.</p>
<h3><span style="font-size: 15px; line-height: 1.5em;">BONUS REASON: Larry Page is investing for the distant future, not the near term.</span></h3>
<p>In the past couple of years, Google CEO Larry Page has invested billions of dollars in self-driving cars, thermostats, robots, and computers for your face. None of those investments have turned into real businesses yet. Maybe they will someday.</p>

Suddenly, Google Looks Shaky

Facebook's 2019 first-quarter earnings call

More than 40 current and former Bloomberg LP employees reveal the company's abusive 'trading floor' culture, where Mike Bloomberg and his colleagues allegedly called women 'SFUs' for 'short fat and ugly,' and women complained about a senior newsroom leader's unwanted massages for years.

You Searched For "whatsapp cart" and got 4 results

Investors just told this startup it was worth $450 million. Now it might be doomed.

Alyson Shontell

Suddenly, Google Looks Shaky

Nicholas Carlson

Facebook's 2019 first-quarter earnings call

Jonathan Garber

More than 40 current and former Bloomberg LP employees reveal the company's abusive 'trading floor' culture, where Mike Bloomberg and his colleagues allegedly called women 'SFUs' for 'short fat and ugly,' and women complained about a senior newsroom leader's unwanted massages for years.

Nicole Einbinder,Dakin Campbe…