The Valley vs the World: How Startup Funding Varies by Country
This is part nine of nine of my big ol’ series exploring every imaginable aspect of startup funding. From funding rounds to valuation methodologies, get ready for a complete crash-course in funding.
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We work with startup founders from around the world, including countries like India, Belgium, and our native UK.
Some of these founders have successfully raised funding in their home nation, but others have already set their sights on countries like the US and Canada — places they perceive as being far friendlier to the startup cause.
In this guide, I’ve focused on the US funding market for one very simple reason: it’s the biggest and most established, and lessons learned from the US are applicable across the world. But what about startups from outside the US?
Even within the US, cities like Boston and Chicago are learning lessons from San Francisco and the Silicon Valley. Globally, they’re joined by the likes of Berlin, Paris and Bangalore, cities full of fresh-faced startup founders keen to emulate the success of their US counterparts.
Each of these cities is a hotbed of startup activity, but crucially, they differ from the Valley in several key ways. So how is startup funding different outside of the US?
1) THERE’S LESS INVESTMENT TO GO AROUND
The US has large and established networks of investors, with thousand of people and institutions willing to invest anywhere from a few thousand dollars to a few billion. Outside of the US, these networks simply don’t exist in the same way — and that has a stark impact on investment.
Data from CB Insights shows that for every dollar available to a European startup, there are six dollars available to their US competitors. Worse still, there are simply fewer deals being done: in the last quarter of 2016, Europe and Asia saw 468 and 323 deals respectively; small fry compared to the 1,127 deals that completed in the US over the same period.
2) THERE ARE FEWER LATE-STAGE DEALS
Of the investment opportunities available to non-American startups, the vast majority fall into the category of Seed and Series A investment.
The institutional investors that fuel the rampant US economy through Series B and above are fewer and farther between in Europe and Asia, and those that do exist seem to be more risk averse. Though we’ve seen a big increase in angels, startup accelerators and incubators (particular in Western Europe and India), these changes are yet to filter through to the big-money investors.
3) UNICORNS ARE A RARER BREED
Overall, this means that there are fewer success stories coming out of non-American countries.
Of the latest batch of 182 unicorns, a full 102 are US born-and-bred (with China accounting for the second most, at 37). In 2014, just 0.15% of funded startups became unicorns, and it’s safe to say that those odds are even lower outside of the US.
This is leading many international startup companies to follow a similar pattern: raising a Seed or Series A round in their home country, before using the investment to establish themselves in the fertile soils of the US startup economy.
THE FUTURE OF STARTUP FUNDING
But it’s not all doom and gloom. Though US investment growth significantly outstrips its international counterparts, there are still hugely promising signs of growth in the global startup economy.
Established economies like Germany, France and the UK have seen steady growth in startups and investment deals (especially in software-as-a-service), and relative latecomers like China and India have seen their own huge surges.
This translates into a steady and significant positive growth trend for the startup economy as a whole.
So why the big difference?
Silicon Valley has had a head-start over other burgeoning startup hubs, with the current gold-rush of innovation and talent tracing its route back to innovators of their time, Hewlett Packard, setting-up shop in the valley in the 1930s.
It’s had decades to build up its current concentration of experts and specialists, from developers to investors to lawyers — but there’s no reason that phenomenon should be exclusive to the valley.
Other cities are hot on the heels of the Valley, building up their own startup communities to provide capital and expertise to those who need it. Though smaller in absolute terms, these startup economies are growing, and growing quickly.
Though the valley rules for now, it won’t always be so clear-cut.
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