The United States’ share of global early-stage capital slips again

Tech hubs tend to generate material wealth for their workers and the countries that house them.

Historically, Silicon Valley has served as the de facto hub for tech. But that is under assault from markets both domestic and abroad. Hotspots in China, India, Latin America and Europe are showing increasing maturity and growth.

Which market is a leader or laggard matters.

Happily, we’re working — as we speak — on our Q3 report. It will detail a host of top-line venture statistics pertinent to our topic. However, for today, I wanted to answer a question: How is the United States faring in terms of its share of global early-stage funding?

As you can see, that metric ties into our comments concerning Silicon Valley’s ascendance.

Directional notes

I pulled data from our global and U.S. reports, finding the projected dollar amounts for recent quarters.¹ I then calculated the percentage of early-stage dollars, of the global whole, that the United States commands.

As you can quickly see below, the percentage is going down:

This is our first time looking at this particular metric, so let’s not worry too much about the absolute percentages. Instead, let’s look at it directionally. In that light, the United States of America has headed one direction: down.

A few things are happening inside the data that are worth explaining.

First, the most recent quarter was not a local maximum for U.S. early-stage fundraising. The first quarter shown above, Q3-2016, was more active in terms of dollars.

However, the most recent quarter’s global tally is a local maximum, coming in at the highest dollar amount for the quarters charted above. So the declines are not driven by shared directional shifts, of which the world is getting the better cut. Instead, the U.S. is moving independent of the global early-stage market.

At around three-quarters of a billion dollars, we can hazard the U.S. early-stage market is healthy. But the global numbers show rising activity that the U.S. can’t match proportionally on its own.

Will our aggregate global and U.S. reports point in a similar direction? We’ll find out soon enough. But don’t be shocked if there is some alignment.

Back to the Valley

Comparing aggregate U.S. metrics versus world metrics is only so good a proxy for how Silicon Valley is doing against the rest. We may, in the future, doodle out a leading-market quarterly report segment that better answers our initial question.

But we can do some work regardless. That’s because Silicon Valley is a critical player in the broader U.S. startup scene.

Returning to our data, we have a couple of options to work from to determine what Silicon Valley is up to:

• Silicon Valley is growing in terms of early-stage dollars. This would imply that other U.S.-located markets have shrunk enough to allow Silicon Valley the space to grow independently, and still have the U.S. market down in aggregate compared to global results.
• Silicon Valley is shrinking in relative dollar-share when compared to the global market. Therefore, the world’s largest tech hub is moving in the same direction as the rest of the United States in early-stage fundraising compared to the global market.

Tapping Occam in for a moment, we can pretty safely point to the second option as the most likely.

So how much does it matter? Only that over time, if Silicon Valley’s funding environment becomes desiccated in comparison to other hubs, its ability to attract the next generation of talent, and therefore startups, could lessen.

And that’s when the positive feedback loop flips.

But don’t worry Silicon Valley — momentum of this sort takes a while to change.

1. We’re using projected Crunchbase funding totals for its reports; many rounds don’t become known during their effective quarter, especially early-stage rounds, so we project based on historical trends to create more accurate results.