Nest Raising Huge New Round From DST, Valuing Smart Home Startup at Upwards of $2 Billion
Nest Labs, the innovative smart home startup, is close to completing a deal to raise upwards of $150 million in a new round of financing that values it at more than $2 billion, according to sources close to the situation.
Context & Ripple Effects
DST is reportedly close to leading upwards of $150 million into Nest Labs at a valuation north of $2 billion — per sources, so unconfirmed until papers are signed. If it lands, it extends the firm's signature late-stage playbook of taking large positions in breakout consumer companies, the same strategy behind its earlier confirmed stakes in Facebook, Zynga, and Groupon.
The round would mark Nest's arrival as the best-funded player in a connected-home market it has been building methodically: CEO Tony Fadell opened the Learning Thermostat to third-party developers with an API announced at CEDIA Expo in September 2013, and sources have reported a second product — a connected smoke detector — nearing sale. The story traveled widely on pickup from outlets including Business Insider, Gigaom, BuzzFeed, and Digital Trends, a sign of how hot the smart-home category had become heading into 2014.
First-order effects
- A closed round hands Nest the balance sheet to scale manufacturing and marketing for its second product line beyond the thermostat, while cementing Fadell's company as the category's valuation benchmark at $2 billion-plus.
- DST adds a hardware-and-services asset to a portfolio otherwise weighted toward internet platforms, doubling down on its buy-big-late model at pre-exit prices.
Second-order effects
- Rivals in the emerging smart-home field — from thermostat makers to hub startups — now compete against a rival with fresh nine-figure capital and a developer API already in market, pressuring them to raise aggressively or seek acquirers themselves.
- Late-stage investors watching DST get access to Nest will chase comparable IoT deals, inflating private valuations across connected-device startups relative to their revenue.
Third-order effects
- If the pattern holds, the smart home consolidates around a few deeply capitalized platform companies that control APIs and device ecosystems, squeezing standalone gadget makers into acquisition targets or niches.
- Mega-rounds at multi-billion valuations for hardware companies with limited public financials deepen the gap between private marks and fundamentals — a structural risk should the funding cycle turn.
The trend: Late-stage venture capital is concentrating in consumer IoT platforms, with firms like DST placing billion-dollar bets on smart-home leaders before the category consolidates.