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Global v US VC investment in 2016

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As with any new economic ecosystem, the startup sphere can be impossible to predict. As trends and insights have unspooled from 2016, we have understood more the direction and manner in which the startup sphere continues to evolve, sometimes contrary to expert predictions. 

Crunchbase has unveiled its 2016 Global Innovation Investment Report, which includes valuable insights into the startup ecosystem, as well as asserting that 2016 was a “bullish year for investment… with venture investment at its highest level in five years”.  Despite a drop in in US investment, as well as a severe drop in the number of unicorn companies, globally we have witnessed fascinating trends that hold true in 2017.  

 

Trends

Impressively, over the course of 2016, global VC investment grew 19% - this means the projected total for venture and seed funding is projected to amass $176 billion, the highest annual total for five years.  Nonetheless, US VC investments dropped 11%, and are expected to amount to $76 billion in 2016 - $10 billion down from the preceding year. 

At the same time, there was a drop in unicorn formation; in 2015, new unicorns were developing at a rate of one every three days. In 2016, however, we saw fewer than 40 unicorns in total.  Conversely, the size of seed deals grew, with the average angel-seed investment rising 30% to $900,000 in 2016. 

 

Predictions

Crunchbase also looked to predictions for 2017, chief among which was the view that post-seed financing will gain momentum in 2017.  Post-seed financing refers to companies that are not ready for Series A, but have demonstrated early market-product fit, with attraction to angel and venture investors – this finance is usually between $1 to $2 million. 

Moreover, the decrease in private valuations last year lead to an increased attraction in the public market. Crunchbase thus predicted that the IPO market will gain momentum in 2017 (it points to Snap Inc’s IPO targeting a valuation of $20 to $25 billion).  Various tech unicorns too are rumoured to be gearing to IPOs in the next year or so which would lend credence to this assertion. 

Regarding the biggest growth sectors for 2016, their study indicates that artificial intelligence and machine learning are poised to dominate – more than 300 companies raised seed or early stage venture financing, while only about a dozen closed late stage rounds in 2016. 

 

Looking globally

The report acknowledges the manner in which VC investment has become an increasingly global affair, by stating it is a “global business… with a growing percentage of financing taking place outside Silicon Valley as an expanding array of innovation hubs compete for capital.” This lead Crunchbase to report that, in 2016, 83% of venture financing took place outside of Silicon Valley.  This is partially due to the fact that the two best known Silicon Valley firms, Sequoia Capital and Accel Partners, have allocated an increased amount of investments internationally with heavy focus on China and India.

Another interesting trend to emerge globally from 2016 is the number of Chinese unicorns - “at least half a dozen or more China-based startups joined the unicorn club of private companies valued at $1 billion or more.”

Evaluating the ways in which trends emerged and grew in 2016 is essential for investors looking to mimic success in the next year – by narrowing in on the key growth industries and countries, your investment is more targeted and accurate.

 

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Richard Andrée Wiltens

Written by Richard Andrée Wiltens

Richard Andrée Wiltens is a commentator within the fintech sector, who has written for an array of international investment platforms. His career has spanned from investment banking to financial technology firms, backed by an education in economics and finance.