In recent years, the prevailing trend in global venture funding has been the movement of more capital to tech hubs outside the United States, to China in particular.
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However, data for the past two quarters indicates that the trend is reversing course. For the first two quarters of 2019, North American startups* pulled in 49 percent of total global venture investment, per Crunchbase projections, far above 2018 totals.
It’s a particularly sharp rise in comparison to year-ago quarterly totals. In Q2 of 2018, U.S. and Canadian startups pulled in just 37 percent of global investment. In Q1 of 2018, the figure was only a couple points higher. We lay out the particulars for the past nine quarters in the chart below:
China Slowdown Is Key Cause
When we see someone gaining the lead in a race, it’s usually one of two things. Either the new leader has picked up momentum, or rivals have slowed. In this case, it appears that a sluggish competitor is the key factor behind North America’s rising share of global venture funding.
First off, let’s note that total dollars flowing to U.S. and Canadian startups have actually been fairly flat. For Q2 of 2019, Crunchbase projects that North American ventures raised $34 billion across all investment stages. That’s down incrementally from Q1 and up a bit from year-ago levels. So, things are still chugging along at historically high levels, but the rocketship doesn’t appear to be accelerating.
Meanwhile, the Chinese startup scene is experiencing a dramatic deceleration. Out of the tens of billions of VC dollars invested worldwide in Q2 2019, Chinese startups accounted for approximately 15 percent of the total. That’s down markedly from the past quarter, and is a fraction of what it was in Q2 last year.
China’s share of the world’s supergiant rounds—venture rounds of $100 million or more—has also fallen from its world-leading position in 2016 to third place in 2019. The U.S., meanwhile, has widened its lead in supergiant funding rounds, even as more domestic startups exit the private fundraising cycle via massive IPOs.
The U.S. is also gaining share in new unicorn creation. Out of roughly 50 startups that became newly minted unicorns in the first five months of the year, 35 are American. That’s more than two-thirds of the global total.
North American Round Count Share Sinks
Interestingly, while North America is pulling in a larger amount of capital, that money is going to a shrinking share of startups.
In Q2 of 2019, U.S. and Canadian companies accounted for 39 percent of seed and venture funding rounds, per Crunchbase projections. That’s the smallest share in two years, and well below the 50 percent level hit in the same quarter two years ago.
It’s a pretty consistent trend. We’ve seen flat or diminishing round count share for North America in all but one of the past nine quarters, as illustrated in the chart below:
While there’s no single cause for the falling round count share, one of the key contributors is the growing size of the average deal. Venture and growth investors are backing fewer startups and putting more money into the ones they do back.
Growth and maturation of startup ecosystems in Southeast Asia, Europe, and elsewhere, has also been a contributing factor. More angel and VC investors vetting more regional startups leads to more of these companies getting funded.
Lessons From China
So, it is bullish for North America that its startup environment looks bullish? Or is the picture more bearish than it appears, given China’s VC slowdown and the comparatively bubbly North American metrics that appear more stark in comparison to China’s own?
The broad takeaway from recent data seems to be that it’s unwise to get too hung up on a particular narrative.
In VC, for instance, the prevailing narrative in recent years has been pretty straightforward. Venture capital, long an overwhelmingly American industry, was globalizing fast. The broad expectation was that North American startups would see a decreasing share of the total funding pie, as startup ecosystems in China, Southeast Asia, Europe and elsewhere came of age.
Now that story line has changed, and North America has regained its lead. We’ll see how long that lasts.1
*Crunchbase tracks data for North America (U.S. and Canada) together. However, the vast majority of the funding goes to U.S. companies, with Canada’s share in the single digit percentage.↩