Venture capital goes global The international startup hub is born

Few businesses have the ability to attract global attention like successful startups. How is this affecting VC investment in the US?


There are a lot elements that are essential for the creation of a successful startup company. While films such as The Social Network will demonstrate the role a driven founder plays in guiding innovative businesses through the early stages of their lifecycle, the reality is a little bit more complex.

It’s true that a charismatic founder can change the way a company is perceived by the public and by its followers – the enthusiastic fandom surrounding Tesla’s Elon Musk is proof of this – but it’s not enough to guarantee success on its own. In many cases, it’s actually the geographic location that has the biggest influence on a business’s early stages.

Startup hubs aren’t just a collection of budding entrepreneurs and technical geniuses, they’re also a focus of attention from venture capitalists. In fact, the mythos of one of the world’s most famous startup centres, Silicon Valley, has even been immortalised in its own television series. However, a recent report has revealed that the focus of these investors could be shifting as startup hubs go global.

How could this focus the next generation of IT careers?

Preparing for a global startup hub

The Martin Prosperity Institute (MPI) analysed data provided by Thompson Reuters to gain an insight into the global nature of VC spending, and which areas are receiving the most attention from these investors. According to the organisation’s analysis, VC investment exceeded US$42 billion globally in 2012, with the funding shared between 150 different areas worldwide.

However, some locations are certainly receiving more attention than their counterparts, as MPI also discovered that the top 10 most-funded areas accounted for more than half of this overall figure. On top of this, the USA has painted itself as the centre of startup success, with more than two-thirds (70 per cent) of global VC investment occurring across the region.

Unsurprisingly, the San Francisco Bay Area, home to places such as Silicon Valley, remains a hotspot for startup activity and the resulting VC investment. Almost a quarter of all investment in startup companies is directed at businesses in the region, totalling $11 billion during the period MPI analysed.

While Silicon Valley has historically been considered the centre of tech innovation and startup activity in the US, a number of other cities around the country are slowly building their own status as world-leading startup hubs. Can any of them rival the success the Silicon Valley has achieved?

Chicago provides focus for tech entrepreneurs

The Bay Area may be the world leader in VC investment, but for some entrepreneurs there is value in heading into unchartered waters where this less competition, and less saturation in the markets they’re pursuing.

Chicago is beginning to make its name as a significant feature on the US startup scene. A recent report from Built In Chicago revealed that 2015 was the best year yet for the city, with plenty of evidence to suggest this growth is likely to continue.

The report, similar to the MPI study, measured the success of the region by the amount of VC funding Chicago’s startups were able to attract. According to Built In Chicago, this figure was 9 per cent higher in 2015 than it was the previous year, suggesting that the country’s VC investors have acknowledged the value in Chicago’s startup scene.

More than 140 startups shared just over $1.7 billion in funding and a further 39 businesses collectively made more than $8 billion through their respective exits – all of which were acquisitions by larger companies. Again, this number was also an improvement on figures from 2014.

Built In Chicago also analysed the sectors VC investors exhibited the most interest in, finding that startups which sold FinTech products and solutions received the most funding by a significant margin. Other popular industries included consumer web products, health technology and enterprise software which could promote app developer roles.

Austin focuses on tech success

The city of Austin has been growing its influence in the US tech sector for years now, and a new study from Built In Austin confirmed that startup activity in the region is still on the rise. In 2015, the city set a new record for highest number of exits in a calendar year, with 45 exits by acquisition totalling nearly $4 billion in investment.

Co-founder of Continuum Analytics Peter Wang noted that the figures are proof that other cities are able to rival Silicon Valley in terms of startup activity.

“Some unicorns will not make it, and this will cause people to stop assuming that valley investors, founders and engineers somehow have a Midas touch that places them above business fundamentals,” he explained. “Perhaps some of the folks there will come to Austin seeking a more balanced approach to life and startups.”

“I feel like there is a very supportive environment here for people who want to do purpose-driven work.”

The global attention paid to startup success means that VC investors are now turning their attention to businesses across the world. Could yours be next?