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Homeus news$1 billion as milestone and omen

$1 billion as milestone and omen

Fab.com, an online retailer selling affordable high design, last year seemed as if it could be the next Amazon.

Just a few months later, however, it looked as if it could become the next Pets.com.

(Read more: Here's what the2014 tech IPO pipeline looks like)

Snapchat is in the club of billion-dollar technology start-ups, alongside Pinterest, Evernote, Spotify and Dropbox.Patrick Fallon | Bloomberg via Getty Images

Big-name venture capitalists, including the Andreessen Horowitz firm, poured money into the company over the last few years, lured by its startling growth rate. After raising some $170 million in venture funding, Fab accepted an additional $150 million in June, a round that valued the company at $1 billion and vaulted it into the club of billion-dollar technology start-ups that include Snapchat, Pinterest, Evernote, Spotify and Dropbox.

But by the end of the summer, Fab had fallen from that elite. Amid financial trouble, it fired hundreds of employees. A company co-founder and the chief operating officer left the company. Its valuation sank below $1 billion, leaving some investors underwater.

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The rise and stumbles of Fab demonstrate how swiftly the fortunes of start-ups can change. At the company's giddy high point, it also illustrated why some billion-dollar-plus valuations have raised concerns of a new dot-com bubble.

"Predicting what's undervalued and what's overvalued is fabulously hard," said Josh Lerner, a professor of entrepreneurship at Harvard Business School. "It's a trope to see a young, highly valued company and say it's wrong, but sometimes it is."

Fab declined to comment for this article.

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