Is Tech Venture Capital Too Concentrated in America?
Venture capital has played an important role in technological innovation, especially in Silicon Valley, where startups are getting more support from VCs than ever before. For example, the number of initial public offerings (IPOs) with venture backing in the U.S. increased by 27% in 2017 compared to 2016, according to IPO data provider Renaissance Capital. Now that unicorns (startups valued at $1 billion or more) are becoming more prevalent and venture capital investment in China continues to rise, some investors have suggested that there’s too much concentration of venture capital in one country: the United States.
Where is the Money Going?
A few years ago, VCs invested more money outside of Silicon Valley than within it. However, last year roughly 75% of all U.S.-based VC deals took place within California’s boundaries, according to Dow Jones data. We at Social Capital believe that such a concentration doesn’t make sense—and will ultimately prove detrimental to innovation and competitiveness within American industries. Why?
3 Innovative Ways to Invest Globally
Investing has changed significantly over time. In today’s world, there are more options than ever for diversifying and finding innovative ways to invest globally. That doesn’t mean these ideas will fit your investing strategy—but it pays to at least know about them. You may find a way to put them into practice down the road.
Deepen your relationships with angel investors worldwide
It’s true that startup valuations are increasing, and it’s therefore becoming harder for investors to hit it big. On top of that, early-stage capital has become more concentrated. In other words, VCs are putting a lot more money into a smaller number of startups than they used to. So why would investors want to fund these companies with such high valuations? Because those investments could pay off huge if those startups have global talent—which is exactly what angels should be investing in today.
Educate yourself on what makes an overseas startup attractive to US investors
If you’re looking to receive funding from a US investor, understand that they typically aren’t investing in startups overseas simply because it will help their business. Instead, most US investors have a focus on global talent and investment opportunities. If an overseas startup has already been successful at home and is looking to break into new markets abroad, it could be attractive to investors across countries.
Consider investing internationally while you are still young
If you’re an American investor with a long time horizon and a sizeable nest egg, you might be missing out on some great opportunities. For example, when was the last time you invested in global talent or an overseas company? If your answer is never, consider that you may have over-concentrated your portfolio among US firms alone and that investing internationally could lead to much higher returns over time.
Learn how to read European financial statements
Understanding these statements is critical for U.S. companies that want to do business on a global scale—and for entrepreneurs hoping to land venture capital funding from American investors. Learning how to interpret European financial statements isn’t as difficult as it might seem, but it does require some time and attention.
Know the tax implications and laws when investing abroad
While venture capital investing is a less regulated area, you should still know as much as possible about international tax laws and immigration regulations before investing globally. Talk to an immigration lawyer or international finance specialist before making your first foreign investment.
Seek out co-investors who have international ties
If you are seeking out investors for your startup, then you might want to broaden your search a bit. Angel investors, who help finance and mentor early-stage companies, usually invest anywhere from $10K-$250K per startup (and sometimes even more) and invest in their own networks of entrepreneurs to share their wealth of experience. These investments also help expand entrepreneurial reach across borders as well.
Go all in!
In order to finance global talent, many venture firms now consider a company’s commitment to diversity. In other words, if you want funding from these firms, it helps to have an office or workforce that looks different than others. This can impact where entrepreneurs choose to start their business: an entrepreneur may be able to attract more investors and run a leaner operation with less competition by starting their company in a less dense market or international community.
Don’t rush it, but don’t wait too long either.
Unless you have a very large amount of savings that you can afford to play with, it’s not wise to rush into making any sort of investment—especially if it’s one that is a large percentage of your net worth. It’s best to avoid taking risks by investing too soon. On the other hand, don’t wait too long before committing your money either.x
0 Comments