What is Happening in Global Tech Venture Ecosystem
Transition From Industrial to Information Revolution
Technology entrepreneurship is turning out to be an important growth engine for the economic era and over the last two decades, technology companies like Microsoft, Alphabet, Apple, Facebook and Amazon have created a significant economic growth. We have reached a point where, there is tremendous decline in Return on Assets (RoA) of the industrial era companies and their position on S&P 500 index is short lived. In the information era, it is important to adopt new tools along with unconventional way of working and solving problems. Management tools of the industrial era, along with the principles of producer and consumer economy that is capital intensive, volume centric, labour and production oriented approach, is fast changing where start-ups are thriving on sharing and renting economy, by being facilitators of existing assets.
The Shift in Start-up Landscape
The global start-up landscape is evolving rapidly, where disruptive breed of entrepreneurs compete with existing incumbents, either by creating new business models and technology solutions for the unmet need of the customers, or by doing it more efficiently. In recent years, the innovation ecosystem and best practice models which was focused around innovation hubs like Silicon Valley, California and New York, have spread to Tel Aviv, Bangalore, Shanghai and Moscow. Cross-border investments and acquisitions have become common and are increasing year-after-year. The Venture capital ecosystem in established markets is getting more matured and treading cautiously as start-ups struggle to build stronger unit economics and face scale-up challenges. The technology is moving fast from proof of concept stage to find product market fit, where integration is seen as a prime differentiator for sustaining in the fierce market. Every business is becoming a data business and the economy is changing to an algorithm economy, where decision making based on data is the norm, and businesses are moving towards real-time automated decision making using machine learning tools.
Frontier Technologies Will Revamp the Way we Live and Work
Innovative technologies keep evolving across industries and sets new mile stones in the technology growth map. Few years back there was a big hype revolving around ‘Big Data’ which has been overruled by other novel technologies today. Hot technologies which are creating a lot of buzz among VC community and tech entrepreneurs, are the applications of IoT and artificial intelligence in automobile industry (telematics and driverless/autonomous cars), Beacons in retail industry, augmented and virtual reality applications in education and entertainment, Blockchain and machine learning in BFSI industry, and advanced sensors in wearable and remote monitoring. All these novel technologies are creating exciting experience to us and transform the way we do routine everyday activities. Right from home to work space, everything has been more connected and digitized, where we are left with huge chunks of data which has the potential to provide meaningful insights, and help us to be more proactive than reactive. The potential benefits of the technologies are tremendous, and so are the challenges for business leaders to be at the forefront to avoid losing out to competitors. So it has become an essential component for market leaders to be aware of the upcoming trends in technology and be ready with action plans to stay ahead of the competition.
Investments Show a Steady Growth
Capital requirement to start a business was a big constraint for young entrepreneurs few years back, but there is a huge shift in recent times, as the money is chasing NewGen entrepreneurs with novel start-up ideas. Emerging countries like India andChina are becoming a safe bet for start-ups as well as investors due to rapid adoption, and greater need in sectors like healthcare and education. Venture capital and corporate investors, in recent years, have shown great interest in frontier technologies. In 2015, VCs invested USD 128 billion into 7,872 deals worldwide — the most since the dotcom bubble in 2000 and a 44% increase over 2014 investments. Corporations have dramatically ramped up the pace of their private market investments in VC-backed start-ups investing over 40% of total investments in 2015. Year 2015 clocked record high investments to Artificial intelligence, amounting to USD 2.3 billion and the run continued in first half 2016 with close to USD 1.7 billion poured in to it. Since 2011, funding rounds of AI start-ups with corporate participants have increased significantly from merely a couple per year, to over twenty in 2014, and the capital committed in such deals has also increased significantly from USD 27 million in 2011 to USD 280 million in 2015. Global financing in IoT hit an all-time high in 2015 with USD 3.2 billion invested in the space, and the uptick continued in Q1 with USD 837 million in funding activity. Bitcoin and Blockchain start-ups, where VC investments in 2015 amounted close to 0.5 billion USD with 131 deals, are proliferating with potential to transform a myriad of industries other than FinTech,
High Technology Adoption and Reduced Set-up Cost Creates new Start-ups Ecosystems
The rise of start-up ecosystems across different geographies is due to a larger socioeconomic and structural shift taking place. The predominant start-up ecosystems are still located in North America and Europe, occupying 16 of the top 20 cities, with the top four slots occupied by US cities — Silicon Valley, New York, Los Angeles and Boston. Even though start-up ecosystems have exploded globally, Silicon Valley has still about as much capital and exit volume as the rest of the top 20 ecosystems combined.Israel which ranks 5 in the global start-up landscape has developed a specialty in Cyber Security and Machine Learning, an advantage that will likely continue to develop and yield more investments. The UK is the undisputed hub of the Banking and Financial Services, with representation from every company in these industries in London, which makes it easy for new FinTech innovations to find adoption. The London start-up ecosystem ranks 6 and stands out for its exceptional access to affluent consumers, powerful corporations, solid funding landscape and ambitious government initiatives. Berlin, which has historically been successful in markets like e-Commerce and gaming ranks 9, and emerging to be a frontrunner in Industrial IoT leading Industry 4.0 initiative. Singapore’s start-up ecosystem, well supported by its government, ranks 10, where exciting tech trends are seen in IoT, Fintech and Robotics. There is a momentous rise of Indian start-up ecosystem driven by factors such as massive funding, unpenetrated market, and burgeoning domestic demand. Bangalore, which emerged as thestart-up capital of India, ranks 15, offering opportunities for start-ups to turn into billion dollar companies. Emerging economies of India and China have more unicorns put together than whole of Europe, and China leads outside of the US in number of Unicorns in technology. The rise in E-commerce industry in India and China paved the way for creating many unicorn start-ups like Flipkart, Snapdeal and Alibaba.
Corporates Battle out to Retain the Place and Grow
Corporate involvement in start-ups is on the rise, especially in the form of Corporate Venture Capital (CVC), where big tech companies are pouring in hundreds of millions or even billions of dollars to invest in or to buy start-ups building breakthrough technologies, which are synergistic to the existing products, and aligns with the broader strategic vision. Alphabet, Facebook, Microsoft and Salesforce have been aggressively acquiring and investing in start-ups focusing on myriad of upcoming innovations in Machine Learning and Artificial Intelligence, IoT, Big data and Analytics, Virtual and Augmented Reality, and Blockchain applications. start-ups facing volatile public market with increased pressure from investors; Corporations with huge pile of cash looking for next big breakthrough technology and increased shareholder pressure are key drivers for frenzy acquisition scenario at present. For start-ups shopping for VC money, targeting an acquisition is one of the primary options for an exit and big tech companies find acquisitions to bring in talent and expand to new businesses.
Source: CB Insights, Venture Scanner, Compass, ResearchFox Analysis
Key Tech Firms and their Investment/Acquisition focus
Alphabet — Advertising, Machine Learning, AI
Facebook — Social, Mobile
Microsoft — Analytics, Machine Learning, Cloud
Salesforce — Social, Mobile
Apple — AI, Security
IBM — Analytics, Cloud
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ResearchFox Consulting has been instrumental in understanding the startup ecosystem that is shaping up across the globe and has been successfully serving large organizations and investment firms to understand the start-up ecosystem across diverse geographies and emerging technologies.
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