The Rise of Global Startup Investors

Recently, Brad Feld and I have been working hard on The Startup Community Way, a book on how to harness the complexity in the entrepreneurial age. It’s a follow-up to Brad’s, 2012 classic: Startup Communities. We completed a chapter that documents the growth of startup activity globally over the last decade—from startup deals to investors to startup programs—but recently decided to scrap it from the book. But, we wanted to put those data points to use, so I’ll publish some of them here.

(Note: if you want a comprehensive look at trends of venture deals, see Rise of the Global Startup City: The New Map of Entrepreneurship and Venture Capital, a report I published last September with my friend and colleague Richard Florida. It covers a decade of venture capital deals across more than 300 global metropolitan areas that span 60 countries.)

Here, I’ll document the rise of three types of investor groups: venture capital firms (from Seed through later-stage VC), corporate venture capital groups, and a third group for accelerators and incubators. These groups have been pre-populated by PitchBook, my source in this analysis.

Time to Exit

I’m currently putting the finishing touches on a new study about women-founded venture-backed companies in the United States. One of the things I looked at is exit rates—the share of companies either being acquired or doing a IPO—by the gender composition of founding teams. A colleague who reviewed a draft of the study challenged me on the eight- and ten-year exit lag from first financing because the time to exit has gone up in recent years. That’s a fair point, but I only have data going back to 2005 (the oldest first-financing cohort in my data), which constrains my ability to look over longer time periods. It is still an important exercise, and most critically, the results of the comparative analysis between women-founded and non-women-founded companies wouldn’t change much by having more data. And, that’s what I’m most after in the report.

But that did get me to thinking: just how much longer is it taking for venture-backed companies to exit?

Early-Stage Valuation Multiples Are Coming Way Down. What Does it Mean?

Earlier this year, I wrote about the declining number of early-stage venture deals and in the number of startups entering the venture-backed pipeline in the United States. As I think about the overall health of American entrepreneurship, this development raises some questions. Is the early-stage decline driven by factors on the supply-side (investors) or the demand-side (startups)? Or is it both? Does it reflect an overheated market simply returning to normal, or are other factors at play? As one example, is this evidence of winner-take-all markets, whereby fewer startups get funded, but those that do raise ever more capital? Is it something else? Is it all of these things? And, should this concern us?

Platform Giants and Venture-Backed Startups

A friend recently pointed me to a July study by Oliver Wyman titled Assessing the Impact of Big Tech on Venture Investment. I was immediately intrigued because this is a question I’m asked all the time and one for which I don’t have a good answer. On the one hand, I see how platform giants could expand startup activity because they seed an ecosystem, improve labor quality, and provide capital (as customers, investors, and acquirers). On the other hand, I see how their sheer dominance—and the ability to leverage their power into adjacent markets by favoring their own content or wares—makes it difficult  to compete in their space. In fact, reporters have told me that most VCs won’t touch startups operating anywhere near these companies’ orbits, a phenomenon that is apparently so common it’s been given a nickname: “kill-zones”. I took a close look at the numbers to try and figure out what’s going on.

The Follow-On Funnel

Two weeks ago, I published a study for the Center for American Entrepreneurship titled America's Rising Startup Communities. The study looked at the growth and geography of venture capital first financings across U.S. metropolitan areas between 2009 and 2017. One of the biggest questions that's come out of that work is: "what's happening beyond first financings?" This post is the first of at least two that will begin to address that question. Here I will look at national trends, and in a later post, I will examine geography of follow-on investments.

The North Star

In the last couple of weeks, the subject of Canada as a rising startup and tech hub has been seemingly everywhere in my news feed. Much of discussion about Canada has focused on Toronto and Vancouver, and to a lesser extent Montreal (where Techstars is opening a new accelerator, one year after launching in Toronto). And that’s for good measure—these are far and away the leading hubs of startup activity in Canada.

But, I’d like to talk about another northern star that shouldn’t be left out from the discussion: Kitchener-Waterloo.

Where the really big venture deals are

I'm currently doing some research that will detail global venture capital flows. My co-author and I are observing some very large deals in the last few years that skew the overall numbers. These deals are emanating from two places—China and the United States. Interestingly, a relatively small number of companies seem to be driving overall venture capital investment in China, whereas the same is not true of the US.

Sizing up the largest Seed, Series A, and Series B deals

Two days ago, I wrote about a number of trends underlying venture capital deals the last few years. The short version: Today, I thought I'd go ahead and plot those deals. The charts below show the number of deals at the high end of three funding rounds (Seed, Series A, and Series B) between 2007 and 2017. It shows just how much bigger some of the largest deals within these round sequences has gotten.

High-growth firms of the Inc. 5000

High-growth firms of the Inc. 5000

Today, I have a new report out at the Brookings Institution titled "High-growth firms and cities in the US: An analysis of the Inc. 5000." The Center for American Entrepreneurship generously provided funding for the study and Inc. Magazine provided the data.You can read the entire report in more detail with the link above (it's a 15 minute read, max), but here are some takeaways.

Microdistilleries on the rise

Microdistilleries on the rise

Yesterday I wrote about the exponential growth in microbreweries during the last decade. The trend toward small business activity in the brewery industry is an interesting case study because the rest of the economy is moving in the opposite direction—with industry consolidation is on the rise and the rate of business formation near record lows. That got me to thinking: what other industries are experiencing a similar trend of substantial rises in small business activity over a short period of time? I crunched the numbers, and one industry noticeably stood out—distilleries

Craft breweries buck the monopoly trend

Craft breweries buck the monopoly trend

Mounting evidence of widespread industry consolidation has many worried about the future health of the American economy. Excessive industry concentration can have negative effects on innovationjob creationwages, and productivity—hallmarks of competitive markets with many startup companies. But, there is at least one intriguing exception to this trend: microbreweries. I dug into Census Bureau data to find out the magnitude of this trend—looking at brewery industry business counts and employment by firm size.

Immigrant-owned businesses are fundamental to American cities

Earlier this week I read Tech and the City: The Making of New York's Startup Community, by journalist Maria Teresa Cometto and venture capitalist‎ Alessandro Piol. Among many other things, they describe how a preponderance of immigrant-run businesses is attractive to foreign-born high-tech entrepreneurs coming to the United States. Immigrant-owned businesses are one of my favorite things about New York—or any city really. That got me thinking, just how concentrated is New York with foreign-born business owners? What about other American cities? So, I dug into U.S. Census Bureau data to find out.

Almost half of Fortune 500 companies were founded by American immigrants or their children

The Center for American Entrepreneurship, a non-partisan policy and advocacy organization, published a study today on the founders of America’s most valuable companies—those in the Fortune 500. The results are striking—43 percent of companies in the 2017 Fortune 500 were founded or co-founded by an immigrant or the child of an immigrant, and among the Top 35, that share is 57 percent.

Ridesharing hits hyper-growth

The last year has been rough for ridesharing app Uber, what with a litany of regulatory challenges, lawsuits over intellectual property infringement, and questions about gender relations in the workplace. The new year even brought a Twitter-driven #DeleteUber campaign.

So, how’s the business of ridesharing doing? Well, we don’t have good government statistics for 2016 yet, but we do now have such data for 2015, and these show that the hyper-growth of ridesharing that we documented last year is, if anything, accelerating. In fact, just-released data from the U.S. Census Bureau on “nonemployer firms,” which tracks the activity of freelancers (as in the gig economy), shows that 2015 saw the strongest growth of ridesharing yet. Ridesharing through Uber, Lyft, and other apps showed no signs of plateauing in 2015, and instead, the evolving industry spread—including into new metropolitan areas.

How Big is the Tech Sector?

Earlier today, Tyler Cowen had a post titled "Why are there so few computer science majors?", which was prompted by this Dan Wang post on the subject. Among other things, Tyler wonders if there are relatively few computer science majors simply because the tech sector is actually pretty small. Since I was already working with economic data today for another project, I thought it was worth taking a quick look to find out just how big the tech sector really is.

First Round Capital: Collapse or Return to Normal?

Yesterday, an article in the Wall Street Journal talked about some adjustments in the venture capital funding market. The general thesis: fewer companies are getting funded, those that do are raising more capital than ever, and those that don't are left to die (zombie companies). I don't have the time right now to re-assess or validate that analysis in a meaningful way, but on the surface, it appears to be relatively sound.

However, it did make me curious about what's happening in funding markets, and since it's been awhile since I've done any analysis in the area, it prompted me to take a deeper look at funding trends. One thing stood out to me was a sharp reversion in first-fundings since 2015—particularly compared with relatively stable funding trends in later rounds.

The Third Wave of digital technology meets the Rustbelt

Much excitement has been building over what feels like the beginning of an era of immense technological advance, the central role that entrepreneurs will play in its development, and the potential for a wide range of regions to reap the rewards. But progress won’t come easy. Significant challenges are likely to follow as digital technologies expand into relatively untapped areas of the economy.

Two excellent books out in as many months—and a quick data analysis here—persuasively drive these points home.

What Startup Accelerators Really Do

Accelerators are playing an increasing role in startup communities throughout the United States and beyond. Early evidence demonstrates the significant potential of accelerators to improve startups’ outcomes, and for these benefits to spill over into the broader startup community. However, the measurable impact accelerators have on performance varies widely among programs — not all accelerators are created equally. Quality matters.

Accelerating Growth: Startup Accelerator Programs in the United States

Startup accelerators support early-stage, innovation-driven companies through education, mentorship, and financing, in a fixed-period, cohort-based setting. This process of intense, rapid, and immersive education aims to accelerate the lifecycle of high-potential companies and the experiential learning of their founders. Accelerators are playing an increasing role in startup communities throughout the United States, but are commonly misunderstood or mistakenly lumped-in with other early-stage supporting institutions. Early evidence demonstrates the significant potential of accelerators to improve startups’ outcomes, and for these benefits to spill over into the broader startup community and local economy. However, the measurable impact accelerators have on performance varies widely among programs. To that end, an accelerator pioneer offers some best practices.