The Market Diversifies: International Innovation Captures Larger Share Of Startup Funding Applications
In Q3 the global startup ecosystem continued to thrive, with 25% growth over the same quarter last year and up 18% from last quarter, as the innovation economy expands around the world. Quarterly data from Gust, the online platform for the global angel investment industry, reveals that while incumbent leaders show no sign of slowing down, new industries and areas are entering the arena as well.
New York has relinquished its top spot in startup generation after two quarters of torrid growth, having previously beaten out California for the most funding applications. In third quarter of 2015, California came back strong with 23.1% of U.S. funding applications, up from 17.5% last quarter. New York came in strong in second place with 15.6% of applications, about the same as this quarter last year and down from 21.2% last quarter. In contrast, Colorado — thanks to a torrid startup ecosystem centered around Boulder — almost doubled from 2.6% to 5.0% this quarter, breaking into the top five and pushing out Texas. Michigan also had a notable increase of 308% over last quarter, taking the sixth spot with 4%.
At the international level, while the absolute number of U.S. startups seeking seed funding grew 7% over the previous quarter (and still accounts for a majority of the world’s high-growth startups), U.S. startup applications represented 4% less of the total share than in the previous quarter. A significant portion of emerging startups was distributed among emerging — and perhaps unexpected — countries. The usual innovation hotbeds of India, Canada, and France maintain slots two, three and four, but Romania for the first time took the fifth spot with 2% of total applications, after not even making the top 10 last quarter. This bumped Australia out of the top 10, which also included Germany and Estonia with 0.9% and 0.8% respectively.
In addition to the regions from which startups are emerging, there are also interesting shifts this quarter in how quickly during their life cycles companies are reaching out to business angels and venture capitalists. Startups in idea stage saw a 26% increase, as ambitious younger companies increasingly compete for funding even before developing Minimum Viable Products. As a result, revenue stage applications, which saw a bump last quarter, fell 35% and are now well below the 8% share they have traditionally held. As the startup economy continues to grow, and seed stage funding continues to be plentiful in a hot market, companies are seeking funding at ever-earlier stages to expedite and optimize development.
Fundraising activity in the technology sector increased by 181% over last quarter, taking the fifth ranking spot with 9.7%. Infrastructure firms also joined the top 10 — having not made an appearance in the last year — surprisingly pushing out Financial Services and Business Products & Services, which have historically been among the most active startup industries.
The steady growth in the number of startup funding applications worldwide shows no signs of slowing down, and the diversity in location and product that the applications represent continues to expand as well. While the U.S., New York and California, and consumer and Internet services, continue to dominate startup and investment opportunities, other areas are on the rise and we expect new networks and extended infrastructure to evolve and drive the diversification forward.