INSUBCONTINENT EXCLUSIVE:
Photographer: Daro Sulakauri/BloombergAccording to a new study conducted by the Center for American Entrepreneurship and NYU Shack Institute
of Real Estate, the US may be losing its competitive advantage as the dominant nucleus of the startup and venture capital universe.The
analysis, led bysenior Brookings Institution fellowIan Hathawayand Rise of the Creative Class authorRichard Florida,examines the flow of
venture capital over 100,000 deals from 2005 to 2017 and details how the historically US-centric practice of venture capital has become a
global phenomenon.While the US still appears to produce the largest amount of ventureactivity in the world,America share of the global pie
is falling dramatically and doing so quickly.In the mid-90s, the US accounted for more than 95% of global venture capital investment
By 2012, this number had fallen to 70%
At the end of 2017, the US share of total venture investment had fallen to just 50%
Over the last decade, non-US countries have propelled growth inthe global startup and venture economy, which has swelled from $50 billion to
over $170 billion in size
In particular,China, India and the UK now account for a third of global venture deal count and dollars & 2-3x the share held ten years ago
And withVC dollars increasingly circulating into modernizing Asia-Pac and European cities, the researchers found that the erosionin the US
share of venture capital is trending in the wrong direction.Growth of global startup cities and the myth of the American &rise of the
restWe&ve spent the summer discussing the notion of Silicon Valley reaching its parabolic peakObserving the &rise of the rest& across
smaller American tech hubs.In reality, the data reveals a &rise in the rest of the world&, withstartup ecosystems outside the US growing at
a faster pace than most US hubs.The Bay Area remains the world preeminent beneficiary of VC investment, and New York, Los Angeles, and
Boston all find themselves in the top ten cities contributing to global venture growth
However, only six of the top 20 cities are located in the US, while 14 are in Asia or Europe
Atthe individual level, only two American cities crack the top 20 fastest growing startup hubs.Still, the authors found thebulk of VC
activity remains highly concentrated in a small number of incumbent startup cities
More than 50% of all global venture capital deployed can be attributed to only six cities and half of the growth in VC activity over the
last five years can be attributed to just four cities.Despite the growing number of ecosystems playing a role in venture decisions, the
dominant incumbent startup hubs hold a firm grip on the majority of capital deployed.China and the surge of mega deals Unsurprisingly, the
largest contributor to the globalization of venture capital and the slimming share of the US is the rapid escalation of China startup
ecosystem.In the last three years, China has captured nearly a fourth of total VC investment
Since 2010, Beijing contributed more to VC deployment growth than any other city, while three other Chinese cities (Shanghai, Hangzhou,
Shenzhen) fell in the top 15.A major part of China ascension can be tied to the idiosyncratic rise of late-stage &mega deals&, which the
study defines as $500 million or more in size
Once an extremely rare occurrence, mega deals now make up a significant portion of all venture dollars deployed
From 2005-2007, only two mega deals took place
From 2010-2012, eight of such deals took place
From 2015-2017, there were 80 global mega deals, representing a fifth of the total venture capital activity
Chinese cities accounted for half of all mega deal investment over the same period.The good, the bad, and the uncertain It not all bad for
the US, with the study highlighting continued ecosystem growth in established US hubs and leading roles for non-valley markets in NY, LA,
and Boston.And the globalization of the startup and venture economy is by no means a &bad thing&
In fact, access to capital, the spread of entrepreneurial spirit, and stronger global economic development and prosperity is almost
unquestionably a &good thing.& However, theUS& share of venture-backed startups is falling, and theUS losing its competitive advantage in
the startup and venture capital market could have major implications for its future as a global economic leader
Five of the six largest US companies were previously venture-backed startups and now provide a combined value of around $4 trillion.The
intense competition for talent marks another major challenge for the US who has historically been a huge beneficiary of foreign-born
With the rise of local ecosystems across the globe, entrepreneurs no longer have to flock to the US to build their companies or have access
to venture capital.The problem attracting entrepreneurs is compounded by notoriouslyunfriendly US visa policies not to mentionrecent harsh
rhetoric and tension over immigration that make the US a less attractive destination for skilled immigrants.At a recent speaking event,
Florida stated he believed the US& fading competitive advantage was a greater threat to American economic power than previous collapses seen
in the steel and auto industries
A sentiment echoed by Techstars co-founder Brad Feld, who in the report forward states, &government leaders should read this report with
alarm.It remains to be seen whether the train has left the station or if the US can hold on to its position as the world venture leader
What is clear is that Silicon Valley is no longer the center of the universe andthe geography of the startup and venture capital world is
changing.The Rise of the Global Startup City: The New Map of Entrepreneurship and VentureCapitaltries to illustrate these tectonic shifts
and identifies tiers of global startup cities based on size, growth and balance of VC deals and investments.
