Where are VCs investing?
It’s often said that in tricky market conditions, there is a flight to safety, including a retreat to comfortable home markets. In a bumpy year for venture capital, where have VCs been investing?
VC’s flight home
In 2023, 58% of venture capital has been deployed in investors’ home markets. This is the highest percentage of domestic market investment of any year, and higher even than locked down 2020 (55%).
Looking for caveats, is there a weird outlier skewing the stats? Yes and no. OpenAI's $10B round from Microsoft in January (US investor to US target) moves the needle, but it still leaves 2023 with a higher share of domestic deployment than previous years, at 55.4%.
US vs. European investors
US investors have been on a pretty continuous journey of investing more internationally, as entrepreneurship and tech ecosystem have proliferated globally. In general they invest a higher than average share of capital in their (admittedly very large) home market.
Once again there is a flight to local investment in 2023. 67% of US venture capital has gone to US companies in 2023, compared to a low of 57%.
In Europe it's a similar picture. Half of European venture capital deployed in 2023 has gone to startups in VCs' home market. The highest historical percentage. A further 28% has been cross-border European investment, e.g. LocalGlobe (London) backing Cycle (Berlin).
European investors are also increasingly looking further afield. In 2010 just 11% of European venture capital was invested outside the continent. In 2021 that peaked at 30%.
Venture capital is a globally business
Despite short term trends, it's clear that in general startups. and venture capital are rapidly globalizing industries. A decade ago, two thirds of all venture capital was raised by US-headquartered startups. Now more than half of startup investment is raised outside the US.
Some of the fastest growing geographies by VC in recent years have been Latin America, Africa and South East Asia. And after a few challenging years geopolitically and epidemiologically, China is back. China's global share of VC investment is growing again for the first time in five years.
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