Why 2019 Will Be A Mixed Fundraising Year For Startups

Predictions should always carry a warning — the past is not a perfect predictor of the future. Even the most sophisticated models might not have captured the most important variables in reality. That said, many important signs point to 2019 being a more challenging year for US startups to raise funding. This is not a prediction of slowdown, it’s a prediction that the demand for capital companies will grow faster than the supply of capital.

1) More Concentration

For the past couple years the US has seen a larger proportion of money being allocated to later stages. This should make sense given the explosion of unicorns and the increasingly high number of “monster” rounds — they have outpaced the overall growth of the ecosystem. If the trend maintains we should expect seed entrepreneurs to be competing even more for the pool of capital in 2019.

2) Funding Growth > Inflation

US inflation hasn’t fluctuated significantly since 2009 and 2019 is expected to be similar to 2018.

The overall growth in startup rounds and valuations has definitely been outpacing the inflation average of 2.5%. In short, the market continues expecting startups to be a more powerful growth engine than the rest of the economy.

3) Large Exits

CB Insights counted 260 unicorns worldwide in Aug 2018, a number that keeps growing. As these companies have matured over multiple years, it’s inevitable that a fair number will have an exit, most likely going public.

In fact, looking at just the top 10 in software / services by market cap we can extrapolate several trends. One, it’s a two-country game. Two, Chinese companies are younger. Three, the vast majority in the US has been in existence for over 10 years, which is higher than the historical average of tech companies to go IPO in 7–8 years. Given high-profile IPOs in 2017 and even more in 2018, we should expect a larger number in 2019 — higher liquidity will eventually fuel early-stage.

These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). I would be stoked if they get people interested enough in a topic to explore in further depth. I work for Samsung’s innovation unit called NEXT, focused on early-stage venture investments in software and services in deep tech, and all opinions expressed here are my own.