Let’s analyze the history of investments and learn more about development in startup capital.
Over the past decade, the external environment for alternative investments has seen enormous changes. One of the most affected areas is startup capital and venture funding for entrepreneurs. With the rise of technologies, new types of origination appear, and investors will take advantage of those opportunities.
With new technologies and approaches it’s becoming easier to invest in seed and early-stage startups, lowering barriers to entry for high-net worth individuals to make angel investments.
The report “Alternative Investments 2020: The Future of Capital for Entrepreneurs and SMEs” by World Economic Forum describes the principal new capital sources that have emerged over the past decade, examines their drivers, and explains their effects and importance for society. And now we present you a short review of this report.
The financing landscape for startups has changed considerably in recent years. In developed markets, the total number of VC firms has fallen over the past decade.
However, the number of angel groups in the US increased by more than 30% from 2009-2013 while the number of individual angel investors increased by 22% over the same period.
The growth of business angels groups has impact on amount of investment in startups. For early-stage investments, this growth is a reflection of an increase in the number of deals, while for late and expansion stage investments, average deal sizes have grown.
The number of startups being funded is growing for several reasons. First, the number of wealthy private individuals, which have historically been an important source of capital for start-up companies, increased dramatically over the past decade. The growth in emerging markets generated enough private wealth to nearly triple the number of individuals worth more than $100 million from 2004 to 2014.
Second, technological developments have significantly reduced the cost of starting a business, which has reduced barriers to entry for entrepreneurs around the world. This is true especially in software, where – thanks to cloud technology – it is now possible to start a business without even owning a server. The graph “Sectors of capital invested in VC” shows how funding trends have subsequently skewed heavily towards the software sector in the last decade.
As for regions, China and India, in particular, have emerged as new hubs for global venture capital. Together, they now attract more investment than Europe (look at the last two graphs in the infographic). In addition, more than 25% of the unicorns are not based in North America or Europe, and half of those are based in China. VC in the US remains highly concentrated, with only 23% of capital in 2014 going to businesses outside of California, New York, or New England.
In contrast, 57% of angel funding went to companies outside those three areas during 2014.
According to the report of WEF, we see three main trends in the VC industry:
- the funnel for startups is broadening as more startups seek and find funding in the early stages;
- the time before a startup seeks an exit through an IPO or acquisition by a company is lengthening;
- Asia is emerging as an important hub for VC due to the globalization and localization of venture capital and the scale of China as a new potential market for firms.
You can learn more information about alternative investments in startup capital, crowdfunding and mid-market capital in the report “Alternative Investments 2020: The Future of Capital for Entrepreneurs and SMEs”