Look at the global financial landscape. Then think about the tech one. Combine them. Any intersections? Obviously. “The U.S. lead the world” is just another truism. But we have to repeat it again. And no matter what time period is considered: North America (NA) has been providing the global economy with cutting-edge tech and advanced business models since times immemorial.
Nowadays, the United States and (indeed, to a lesser extent) Canada don’t just set trends, but also shake markets by carrying out huge financing rounds. We scrutinize investment trends in North America to wrap up the series of articles on global PE/VC markets prepared by EqualOcean.
There are the key insights summarizing our findings:
The amount of money raised by North American early-stage and late-stage upstarts has been growing at a CAGR of 9.1% throughout the last three years. In Q2 2019 this number hit USD 28.41 billion;
Local healthcare firms and enterprise services providers have obtained more financing than companies in other industries, holding approximately a fourth of the money raised in the pre-IPO rounds of funding in the region since Q3 2016;
Early-stage healthcare upstarts has had an influx of investment in this period. The medical industry players make up 40% of the top 50 seed and early-stage investment recipients in the region;
The We Company that is famous for its workplace-sharing platform WeWork is the absolute money-raising leader among all the pre-IPO companies: in the last three years, it nabbed USD 690 million, USD 4.4 billion and USD 1 billion in the Series F, G and H rounds of funding respectively. The coworking kingpin’s overall funding to date exceeds USD 12 billion, which is also the highest record among the U.S. and Canadian upstarts.
Grail, California-based company developing a blood-sampling device that helps reveal cancers at their early stages, completed an USD 1.2 billion Series B in the late 2017 – the largest round of financing carried out by an early-stage venture lately in North America.
In this article we first discuss recent investment trends in NA (“Big picture”), then focus on the companies that raised the largest amounts of money since 2016 (“Juggernauts”), and finally analyze not-too-long-ago-established companies that recently completed their early stage financing (“Promising rookies”).
Why do we care about the money raised by upstarts belonging to certain countries or regions?
For one, the long-term forms of financing prevail at this stage. Thus, investment dynamics can indicate the markets’ feelings about the “big environment” and reveal the investors’ strategies in weighing their chances in order to maximize ROI.
Besides, the companies that are on everyone’s lips nowadays in most cases have something to do with tech. Ask Robert Solow about significance of technology when discussing economic growth. Today, we have no need of Nobel Prize in Economics to prove that the Silicon Valley’s offsprings do shape the way we live, act and even think.
North America has long been the global economic leader. With GDP per capita of USD 57,791, the United States are the fifth in the list of OECD countries by this parameter. Canada ranks 15 with a splendid USD 45,109 record. But that's true, GDP palls. Let's change the subject.
A more interesting indicator is how much people invest. And the numbers look viable: “the home of the brave” faced a high household investment rate (31.2% of gross fixed capital formation) in 2017, while its northern neighbor climbed to 37.3% that same year (these are the fifth and the third results among the OECD countries respectively).
Corporate investment rates aren’t too high though: Canada (46.1% of GFCF) and the U.S. (53.6% of GFCF) are out of the OECD top 10. Moreover, these numbers have been slightly declining over the last three years. Let’s see whether this trend correlates with the VC market situation in the region.
Both the volume of deals closed and the amount of capital invested in various North American upstarts have been growing over the last three years. While the first indicator has been relatively stable, the second has been risen steeply.
In Q3 2018, local companies obtained almost 150% more funding than in the same period two years ago. The quarter-over-quarter total VC financing CAGR between Q3 2016 and Q2 2019 amounted to 9.1%, making it possible for the U.S. and Canadian upstarts to hop over the USD-100-billion bar YTD in both quarters of 2019. In this section we only consider financing rounds of more than USD 1 million.
It is easy to distinguish an uptrend here. How about the structure of investment? Companies at which development stages are drawing more attention recently?
In terms of stages of the investing lifecycle, the region has been facing serious structural changes. The three years of the latest economic turbulence forced the VC investors to choose carefully, and wealth managers eventually altered their preferences, minimizing the systematic risk: slipping down 10% (from 39.4% in Q3 2016 to 29.4% in Q2 2019), a segment of the companies that just completed pre-seed, seed or angel investment has become the major victim of this macro shift.
Important to stress that the funding rounds B and C have become more commonly occurring: the share of the two in the total deal volume leaped from 21.9% in Q3 2016 to 29.9% in Q2 2019.
However, the abovementioned doesn’t mean that the total dollar volume of pre-seed, seed and angel rounds has decreased since 2016. There is just an amount of relatively big rounds of this stage that has been shrinking.
Industry layout is another issue to discuss. We tracked performance of the top 250 most-funded North American ventures to answer the question: companies in which sectors outplay the rest and lead the local VC market?
250 largest venture rounds helped local upstarts raise USD 86.29 billion in transactions across various industry verticals in North America. Enterprise services top the list with 15.5% (or USD 13.37 billion), healthcare is a runner-up with 12.7% (or USD 10.95 billion). Real estate, financing services and energy are also in the top 5 of the most intensively invested sectors in the region.
Strong presence of healthcare, enterprise services (that is a broad category including a wide range of companies from training organizers to cloud services providers) and real estate in many ways resembles the current topical issues in the developed world. Both healthcare and dwelling are quite expensive in the U.S. and Canada. Services account for over 65% of the region’s GDP.
To sum up, we’ve been seeing an uptrend in VC investment in North America. The industry-level structure is sustainable and the same can be detected in the investment lifecycle structure. The startup-forge retains its world leading niche.
If you pay at least a tiny bit of attention to the tech-related hearsay these days, it must be hard to astonish you by use of the world biggest ventures’ names. Nonetheless, it is possible to provide some industry-related insights. The findings of this type definitely can’t render one speechless, but might smoothen a transition to the last part of the article.
We separated the local pre-IPO giants into 14 distinct groups to elucidate the “who combats who?” picture and reveal the industry-level state of things in North America.
The companies above raised approximately USD 40 billion in different financing rounds throughout the last three years. Among them, The We Company, a money-raising record-holder, has completed three rounds of funding, obtaining USD 6.09 billion from various investors.
The list of other big deals here includes USD 2.5 billion of private equity investment collected by global enterprise software and services provider Infor and USD-1.1-billion-worth Series H carried out by California-based IoT and industrial design company View. A handful of companies across the sectors also raised USD 1 billion within just one round.
The investment allocation is apparently even as no industry comprises more than six of the 50 leading upstarts in the region. Media & entertainment, financial services, manufacturing, enterprise services, energy & environment together account for 54% of top money-recipients, while travel & leisure and food & agriculture each has only one juggernaut on the list (TripActions and Indigo AG).
The We Company, Airbnb and Opendoor collectively create the most-valued cluster of companies – real estate. The three are also among those upstarts completed a huge number of funding rounds as of Q2 2019 (Airbnb – 16, The We Company – 14, Opendoor – 8). Just-mentioned View, FinTech unicorn SoFi and delivery service mangate Instacart also lead the list of the most often invested firms.
Who’s left? Exactly. The most promising upstarts in the region are to be named. We picked the firms that undertook their last round of funding within the same (Q3 2016 – Q1 2018) period, considering pre-seed/seed/angel investment, Series A and B only. As a result, EqualOcean presents the top 50 selected enterprises that have been leading North American early-stage startup scene over the last three years.
A brief glance is enough to realize that healthcare industry mantles a huge chunk of the leading early-stage startups in North America. 20 (or 40%) of the businesses that we are touching upon in this section have something to do with people's well-being.
In this fraction we can also find Grail, the firm that carried out the largest round of financing among all the early-stage companies in the Western Hemisphere. The California-based company enables doctors to develop blood tests for early-stage cancer detection. In the late 2017 it raised USD 1.2 billion, quadrupling the total funding that now amounts to more than USD 1.6 billion – a terrific amount for the three-year-old firm.
There are three Canadian companies in this list. Control Mobile, BlueRock Therapeutics and North (representing Vancouver, Toronto and Kitchener respectively) have collectively raised USD 675 million since Q3 2016. Control Mobile provides its clients with a wide range of services and digital products (including big data analysis, e-commerce solutions, financial services, software development), BlueRock Therapeutics is a regenerative medicine company and North is a consumer electronics producer.
The last takeaway in this part is how the only seed-investment round in our selection looks like: Atlanta-based DDCTE Holdings is a community-building project that raised USD 180 million in late June 2018, becoming the largest seed round on the continent.
As was expected, no staggering results herein. North American venture market maintains its buoyancy, showing the uptrend. Investors, considering early-stage upstarts, have been making healthier choices by putting money into the medical industry. At the same time, they are lately reluctant to bet big on the new companies: the number of massive seed-investment rounds has been shrinking since Q3 2016.
Are we facing a structural change or just an end of a business cycle in the VC sector? Either way, North America holds the tech-investment throne firmly.