Two weeks ago, I published a study for the Center for American Entrepreneurship titled America's Rising Startup Communities. The study looked at the growth and geography of venture capital first financings across U.S. metropolitan areas between 2009 and 2017. One of the biggest questions that's come out of that work is: "what's happening beyond first financings?" This post is the first of at least two that will begin to address that question. Here I will look at national trends, and in a later post, I will examine geography of follow-on investments.
The New York Yankees and Startup Communities
Startup communities are examples of complex adaptive systems. This means many things for understanding and influencing their behavior, but today I want to focus on two concepts: non-linearity (the sum is greater than the parts) and synergistic integration (interaction between the parts matters a lot). To make my point, I’ll draw on an example from my favorite sport.
The North Star
In the last couple of weeks, the subject of Canada as a rising startup and tech hub has been seemingly everywhere in my news feed. Much of discussion about Canada has focused on Toronto and Vancouver, and to a lesser extent Montreal (where Techstars is opening a new accelerator, one year after launching in Toronto). And that’s for good measure—these are far and away the leading hubs of startup activity in Canada.
But, I’d like to talk about another northern star that shouldn’t be left out from the discussion: Kitchener-Waterloo.
Introverts and Networking
I'm an introvert. I didn't know that for a very long time, but it turns out to be true. It surprises most people I know well when I say that because they find me to be engaging and social. But, introverts are not necessarily anti-social. Rather, introverts are energized by solitude and drained by crowds. Extroverts are the opposite. I'm at my best in small groups—anything above six to ten or so brings out the introvert in me. This is less true in social settings; more so in professional ones.
Last week I was at a conference—the type of environment my introverted self really likes to come out. It was an excellent conference and the people I met are amazing. But, big conferences can wear me down, and the productivity guilt and self-doubt associated with not wanting to be a power networker starts to creep in.
I'm not a power networker and I'm ready to own that. I am committed to doing more of it, but I can only push that so far. I also know there is another path.
The More of Everything Problem
Last week, the European Investment Fund—the small business investment arm of the European Union—announced a new $2.6 billion fund-of-funds to support venture capital deployment in the continent. The EIF is already the most active LP in European venture funds by a long shot.
That got me to thinking: is this the best way to stimulate startup activity in the EU? Is a lack of venture capital the biggest constraint facing European startups right now? If so, is this the right way to go about it? How else could that money have been used? What is the opportunity cost?
To me, it is another reminder of something that I’m seeing in startup communities everywhere: what I’m calling The More of Everything Problem.
Where the really big venture deals are
I'm currently doing some research that will detail global venture capital flows. My co-author and I are observing some very large deals in the last few years that skew the overall numbers. These deals are emanating from two places—China and the United States. Interestingly, a relatively small number of companies seem to be driving overall venture capital investment in China, whereas the same is not true of the US.
The Nobel Prize in Startup Communities
I’m currently working with Brad Feld on a sequel to his 2012 paradigm shifting book Startup Communities: Building an Entrepreneurial Ecosystem in Your City. Last week, I wrote about behavior and mindset in a startup community, and think one of the points we’re making—about cooperation and playing positive sum games—is worth sharing here. Not only do cooperative strategies in startup communities make intuitive sense, but there is also a fair amount of supporting evidence. In fact, even a Nobel Prize was awarded for ideas that support the central thesis behind startup communities.
Silicon Valley is Not Over
A New York Times article published yesterday declares that “Silicon Valley is Over.” This follows a recent Wired article declaring that “Everyone Hates Silicon Valley.” While this does make for great journalism, I worry that it sets a unrealistic expectations in other parts of the country. Silicon Valley is not over—not even close. And when you suggest that it is, it implies a Silicon Valley’s downfall will be a big win for everyone else. That’s zero-sum thinking and I don’t agree with it.
Will Generation Z save our country and the economy?
Will Generation Z, which has lived through the Iraq war, the financial crisis, police brutality, mass shootings, rising cost of education, and Donald Trump, be a generation of entrepreneurs? Will they use their creative instincts, technological savvy, and a distrust of the established order to bring radical change to our business and social sectors? These are the right conditions for creativity, innovation, and entrepreneurship to flourish.
Sizing up the largest Seed, Series A, and Series B deals
Two days ago, I wrote about a number of trends underlying venture capital deals the last few years. The short version: Today, I thought I'd go ahead and plot those deals. The charts below show the number of deals at the high end of three funding rounds (Seed, Series A, and Series B) between 2007 and 2017. It shows just how much bigger some of the largest deals within these round sequences has gotten.
What's driving the increase in average venture capital deal sizes?
Earlier today, I saw a post that showed average venture capital deal sizes increasing across the round sequences. I wanted to find out what is driving these trends, so I dug deeper into the data. It shows that digging into the underlying data on deal size distributions contains rich insights.
High-growth firms of the Inc. 5000
Today, I have a new report out at the Brookings Institution titled "High-growth firms and cities in the US: An analysis of the Inc. 5000." The Center for American Entrepreneurship generously provided funding for the study and Inc. Magazine provided the data.You can read the entire report in more detail with the link above (it's a 15 minute read, max), but here are some takeaways.
Microdistilleries on the rise
Yesterday I wrote about the exponential growth in microbreweries during the last decade. The trend toward small business activity in the brewery industry is an interesting case study because the rest of the economy is moving in the opposite direction—with industry consolidation is on the rise and the rate of business formation near record lows. That got me to thinking: what other industries are experiencing a similar trend of substantial rises in small business activity over a short period of time? I crunched the numbers, and one industry noticeably stood out—distilleries
Craft breweries buck the monopoly trend
Mounting evidence of widespread industry consolidation has many worried about the future health of the American economy. Excessive industry concentration can have negative effects on innovation, job creation, wages, and productivity—hallmarks of competitive markets with many startup companies. But, there is at least one intriguing exception to this trend: microbreweries. I dug into Census Bureau data to find out the magnitude of this trend—looking at brewery industry business counts and employment by firm size.
Immigrant-owned businesses are fundamental to American cities
Earlier this week I read Tech and the City: The Making of New York's Startup Community, by journalist Maria Teresa Cometto and venture capitalist Alessandro Piol. Among many other things, they describe how a preponderance of immigrant-run businesses is attractive to foreign-born high-tech entrepreneurs coming to the United States. Immigrant-owned businesses are one of my favorite things about New York—or any city really. That got me thinking, just how concentrated is New York with foreign-born business owners? What about other American cities? So, I dug into U.S. Census Bureau data to find out.
Immigrant entrepreneurs are vital to American prosperity
Immigration policy continues to vex America. For more than a century, the United States has proudly defined itself as the world’s great melting pot of immigrant cultures and talents. And yet, few issues have more sharply divided the modern political landscape. As policymakers grapple with these difficult questions, two critical realities are too often forgotten amid the haze of fractious political debate — the connection between entrepreneurship and economic prosperity, and the importance of immigrants to American entrepreneurship.
The Rise of the Rest Seed Fund
On Monday, Revolution — the Washington-based venture capital firm lead by Steve Case — announced a new $150 million seed fund dedicated to helping entrepreneurs living outside the well-established startup hubs get their business off the ground. I’ll use this opportunity to share three things stand out in my mind.
Almost half of Fortune 500 companies were founded by American immigrants or their children
The Center for American Entrepreneurship, a non-partisan policy and advocacy organization, published a study today on the founders of America’s most valuable companies—those in the Fortune 500. The results are striking—43 percent of companies in the 2017 Fortune 500 were founded or co-founded by an immigrant or the child of an immigrant, and among the Top 35, that share is 57 percent.
