A friend asks: “what percentage of U.S. startups that raise a Series A do not go through an incubator or accelerator?” That’s a great question that I haven’t thought about before. So, I dug into the data to find out.
Over the weekend, I first learned about the Japanese concept “Ikigai” (eee-kee-guy), which translates to “reason for being” or “reason for living.” I was immediately captivated by the image and the construct. I just spent all of last week on a work retreat of sorts with two dear friends and we talked a lot about deep, life’s purpose kind of stuff. So, my discovery of the Ikigai concept could not be better timed. After sitting with it today, this framework has given me remarkable and immediate clarity into what is causing me angst in my working life at the moment.
Venture capital investments into European startups reached an all-time quarterly high of €7bn so far in the first three months of the year.
I’m working hard on The Startup Community Way this week with my co-author Brad Feld. As we’re polishing up the meaty part of the book—which draws on a wide range of theory, empirics, frameworks, and just some really brilliant thinking on the part of the many impressive shoulders this work stands upon—a few names keep coming up in the references we’ve assembled.
Three of these names I want to talk about today are intellectual giants in the areas of entrepreneurship, geography, and cooperative social systems. Their work collectively intersects in a way that explains a lot about why startup communities exist. If you want to understand startup communities, you should know their work. Two of them I consider friends, so not only do I get to benefit from their insightful work, I also know there’s a kindness and generosity behind their ideas. The third is not someone I knew, and sadly she’s already passed. But, I think a lot of her work and I’ve written about it already.
All three are women.
Silicon Valley investors are growing increasingly interested in Europe. That’s the main takeaway from this Sifted Chart of the Week. Last year was a record year for fundraising by European startups with €20.5bn (£18.1bn) spread over more than 3,300 deals. And it came with an increasingly US flavour.
In the last year, I have written about the increasing size of venture capital deals across the round stages (see here, here, here, and here). Today I’ll take a closer look at that the top of the distribution by examining the share of venture capital dollars in U.S. startups captured by the largest one percent or five percent of deals each year.
The analysis shows that in spite of the impressive growth in venture capital deployment across all deal sizes in recent years, the biggest deals are driving the trend. The largest five percent of deals now account for more than half of venture capital deployed—twice as much was the case just a decade and a half ago. In the last few years, the trend has been driven entirely by the top one percent.
My friend Nicolas Colin has an excellent new article out titled “Content-Driven Strategy,” in which he makes a convincing case for thoughtful content as a means of demonstrating and shaping the strategic direction of businesses. Nicolas would know: a robust content-driven strategy has been foundational to the success of The Family—the early-stage investment firm he co-founded with Oussama Ammar and Alice Zagury in 2013. What started out in Paris, The Family is expanding rapidly throughout Europe, with offices in London, Berlin, Brussels, and more surely to follow.
I am a strong believer in content as a means of more fully developing thoughts, stimulating discussion, and attracting potential collaborators. Some American entrepreneurs and investors do take content seriously, but many more don’t. That’s a big missed opportunity. The Family has something to teach us Americans on this front, and Nicolas’s article lays out the many reasons why producing content adds value. I encourage you to read the whole article yourself (as well as The Family’s Scaling Strategy series), but here is a summary.
I recently picked up a copy of How Change Happens: Why Some Social Movements Succeed While Others Don't, a book out last year by Leslie Crutchfield. I immediately became interested in the title because of my upcoming book The Startup Community Way, which will be out later this year. That interest came from the fact that our book (I’m co-authoring it with Brad Feld) is really about a special type of movement-driven social change—one built around local entrepreneurship. How Change Happens is the product of many years of research by Leslie and her team studying a wide range of social movements in the United States—from gun control, to same-sex marriage, to smoking, to drunk driving, to acid rain reduction, to vaccination, and beyond—and systematizing why some succeed while others fail. Dissecting these major movements case-by-case, Crutchfield and her team were able to uncover some interesting patterns about what works and what doesn’t. As I was reading the book, I had in the back of my mind “how do these social movements apply to building startup communities?” I’m glad I did, because it helped crystalize a few ideas I in my head.
This post analyzes the distribution of female-founded venture-backed startups across U.S. metropolitan areas between 2005 and 2017 by measuring “first financings” by the gender composition of founding teams.
Today, I’m going to publish headline numbers of venture capital investments ($) by founder-gender type. I’m doing this for two reasons. First, while my study provided some important new information, headline numbers of capital invested is what clicks in most people’s minds for “what’s going on” (I disagree). Second, I want to point out that looking at headline numbers of capital investments might obscure a truer picture of a diversifying founder base because giant funding rounds are dominating VC markets.
To test this idea, I pulled annual figures for venture capital deals and capital invested by round size (<$50M, $50M-$99M, $100M-499M, and $500M+) and gender dynamics of founders (women-only, mixed gender, and men-only). What my analysis shows is that mega-rounds ($100M+) are male-dominated and drowning out some promising gender diversification going on for companies in-line with historical venture capital activities.
Two weeks ago, I published a new report for the Center for American Entrepreneurship, titled The Ascent of Women-Founded Venture-Backed Startups in the United States. I followed-up with a summary on this blog last week.
One criticism of the report is my definition of “women-founded”. For reasons I explain in detail in the report’s methodology, I chose “women-founded” to indicate a company that has at least one verified female founder. That means it includes startups with all-women founding teams and teams with both women and men (coincidentally, it also means that I assume that companies with missing founder information had no women founders—more on that in a second). A key reason for not separating these groups was needing a bigger pool of companies to draw from in order to credibly track outcomes over time—and there just weren’t enough of them in the mid-to-late 2000’s to do that. There were tradeoffs.
However, that does not prevent me from more narrowly segmenting these groups here and demonstrating first financing trends only across the four types of founding teams in the dataset—women only, men only, mixed gender, and missing gender. To begin, the first chart here displays the raw numbers of annual first financings for startups falling into each of those four founder-gender categories.
Techstars recently launched a Startup Ecosystem Development offering, which is designed to work alongside of communities around the world to help them build a more vibrant environment for entrepreneurship. The program has been in an R&D/beta-launch phase the last couple years, but the first official program will take place in Buffalo, New York over the next three years.
Yesterday, to introduce the program and answer questions about what they’re up to, Chris Heivly (who leads Ecosystem Development at Techstars), Brad Feld (author of Startup Communities and a Techstars co-Founder), and Eric Reich (chairman of 43 North, the startup support organization in Buffalo that is partnering with Techstars to lead the effort) participated in an hour-long segment on Crowdcast.
I embed the event below and encourage anyone interested in the topic to give it a listen—it’s definitely worth your hour and is full of wisdom and insights from these three.
Venture capital databases are not perfect. One of the key problems is their dynamic nature. New information is coming in all of the time. Early-stage activity in particular is systematically lagged until additional rounds are raised (either because the earlier rounds were unpriced or because they were unannounced). For this reason, I try not to report data too recently from when the deals are to have occurred.
Last week, I published a new report for the Center for American Entrepreneurship, titled The Ascent of Women-Founded Venture-Backed Startups in the United States. The study is the culmination of months of research and collaboration with some amazing friends at the National Center for Women & Information Technology and beyond.
I’m on the final day of a week-long vacation (or holiday, if you like). We booked the trip less than a week before it began, so it was also a bit of a surprise. It felt like one of those things I needed to do, and not just something I wanted to do. Within 24 hours of being away from my routine, I knew I was right.
Ethan Mollick, a professor at the Wharton business school, Tweets about a paper that causally links student loan debt with declining entrepreneurship in America (including in high-growth, high-tech activities). By exploiting two “exogenous shocks” to the student loan system (public policy changes that are unrelated to entrepreneurship), the authors demonstrate that student loan debt not only causes individuals to start fewer businesses (especially in the high-tech, high-growth segments), but when they do, they are (a) less likely to be successful, and (b) experience greater hardship from the (already more likely) business failures. These are not exactly the type of conditions that encourage people to start new ventures, particularly when competing in a harsh competitive environment of increasing market power, raising incumbency advantage, and expanding wage opportunities at larger companies.
In 1957, a group of eight Silicon Valley executives lead by Robert Noyce resigned from famed Shockley Semiconductor to start a rival in Fairchild Semiconductor. This sort of thing happens all the time in Silicon Valley today, but at the time, it was a watershed moment that sent reverberations throughout the industry. The Traitorous Eight, as they became known, changed the course of innovation forever by injecting the region with an entrepreneurial ethos that continues to this day and has made Silicon Valley the envy of the world.
Around the same time, nearly 6,000 miles (~10,000 kilometers) away, a very different type of revolution was taking place in Communist China. In 1958, Communist Party Chairman Mao Zedong launched the Great Leap Forward—a wide-sweeping series of economic and political reforms aimed at transitioning China from an agricultural economy to an industrialized one, and at consolidating power around the socialist regime.
So, why on earth am I linking the Great Chinese Famine with the essence of Silicon Valley’s entrepreneurial spirit and with startup communities today?
In The Startup Community Way, my upcoming book with Brad Feld, we explain that startup communities must be viewed through the lens of complex adaptive systems. Such systems are characterized as having many elements (people and things), interdependencies (connections between them), feedback loops (actions lead to reactions), and as being in a constant state of evolution (never at rest).
We make the effort to explain the complex systems framework and tie it to startup communities because the nature of these systems requires a very different type of engagement than we are used to in most of our professional and civic lives. Complex systems require different skills (diversity v. expertise), mental processes (synthesis v. analysis), tactical approaches (experimentation v. planning), and goals (right conditions v. right outcome), among other factors we discuss in the book.
One of these prominent conditions in complex adaptive systems that I want to talk about today is Basins of Attraction. In neoclassical economics, it is assumed that the the economy (also a complex adaptive system) is moving towards a point of stability—an equilibrium. This is done for reasons of simplifying mathematics, but it also has the impact of making many economic predictions unreliable.
Instead of a single point of stability, Basins of Attraction takes the view that there are many such potential “resting places” and that a complex evolutionary process will determine which of these wins out. Basins of Attraction in complex systems—like startup communities—can be thought of as a sort of center of gravity where things can get stuck. Critically, they can get stuck in “good” or “bad” outcomes.
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.
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?