Wednesday, May 22, 2024

Hexgn Global Startup Funding Report 2019

$ 295 billion

Startup Funding

21,745

Number of deals

$19 million

Avg Deal Size

Global Startup Funding 2019: Summary by HexGn

According to the Global Startup Funding Report by HexGn, while the fall in number of deals was a uniform trend, the global startup funding for 2019 was at $295 billion compared to $350 billion in 2018, witnessing a fall of 16%. The number of deals fell at a faster clip by falling 18% from 26,446 to 21,745 deals in 2018 and 2019 respectively. This meant that the average deal size went up from $18 million to $19 million in 2019.

While the fall in the number of deals was a uniform trend across different regions, most regions saw either the same funding or an increase, except for Asia which saw both the number of deals and funding fall dramatically. Funding in North America was constant at $155 billion between 2018 and 2019, funding in Europe increased by 15% to reach $46 billion in 2019 compared to $40 billion in 2018, South America, Oceania & Africa, combined saw the funding increase by 40% to reach $8.4 billion in 2019, up from $6 billion a year ago. Funding in Asia dipped by 43% and attracted only $86 billion in 2019 compared to $150 billion a year ago, according to the “Global Startup Funding Report by HexGn,

Despite being home to a bulk of the population, Asia saw funding drop dramatically. The region is still home to the fastest-growing economies with a consumer base that continues to inch towards high income and consumption levels. In this backdrop, the sharp fall in startup funding does stand out, as mere economic indicators do not explain the fall.

2019 saw the US, and conversely, North America, continue to be the most important driver of technology-led innovation and proved that it has the ability to not only insulate itself from global trends but also significantly influence the trends in some cases.

Most of the fall in startup funding happened in China, where funding dipped from $113 billion to $52 billion, a fall of over $60 billion, more than compensating for a $55 billion decline in global startup funding.

This also meant that Asia went down from matching North America in startup funding, to garnering a little over half of the total startup funding in 2019. 2020 looks challenging for Asia as a whole and China in particular, exacerbated by the pandemic of Coronavirus (Covid-19). It is time for investors to cherry-pick their bets in such a scenario, says  the Global Startup Funding Report by HexGn.

Top Sectors In 2019 for Global Startup Funding

According to the Global Startup Funding Report by HexGn, globally, the top sector was FinTech, which attracted $46.5 billion in funding in 2019. This was followed by Health & MedTech which garnered $45 billion. Software and SaaS had a good year and reached a total funding of $34 billion in 2019.

As per the Global Startup Funding Report by HexGn, the sectors which gained the most in absolute terms were Data & Cloud Enablers, which saw a gain of $6 billion from 2018 to reach $10 billion in 2019. This was followed by Software and SaaS which gained $4 billion over the $30 billion it received in 2018. Real Estate improved by $3.6 billion from 2018 to reach $25 billion in 2019.

The sectors which witnessed the biggest fall in absolute terms were E-Tail, Marketplaces & Portals where funding fell by over $23 billion. While the sector saw funding to the tune of $49 billion in 2018, it attracted only $26 billion in 2019. Even though FinTech was the top sector, funding fell by $12 billion over 2018 when it received $58 billion. Social Media, Entertainment & Gaming and Transport & Logistics also saw a fall in funding to the tune of $10.6 billion and $9 billion, respectively and 2019 saw them attract $19 billion and $25 billion in 2019, according to the Global Startup Funding Report by HexGn, 

In percentage terms, the fastest growing sectors were Data & Cloud Enablers where funding zoomed by 154%, On-Demand Services grew by 80% to reach $3.1 billion, and SpaceTech & Drones saw funding increase by 54% to hit $3.3 billion. Travel & Tourism and Cybersecurity also had a strong 2019, when they grew by 51% and 33%, respectively.

Bucking all trends, be it fall in funding or a fall in the number of deals were four sectors. This probably gives us an indication of a new technology revolution and the emergence of consumer celebration as a philosophy. The sectors were Cybersecurity, SpaceTech & Drones, On-Demand Services, and Travel & Tourism.

Apart from fall in sectors that were heavy favourites in China owing to record levels of funding in 2018, these sectors also saw a realignment which we expected to deepen going into 2019. One is driven by a profit motive that saw good funding strength in Software & SaaS. The other end was to herald the next wave of a technology revolution as companies continue to invest in data centers and look at providing alternate broadband using satellites. Protecting data and transactions in this new world saw investors scurrying to prop up specialized data security and fraud detection options.

2019 Startup Funding Size and Stages

Most of the deals do not disclose the stage of funding and at times it can be very confusing to figure it out and draw a picture from it. We have broken down each category of funding disclosed deals and sorted them on the basis of the average deal size.

For simplicity,  in the Global Startup Funding Report by HexGn, we have categorized deals with an average size of less than $3 million as going into startup formation and validation of business ideas or Seed/Angel funding. Categories falling between $3 million and $30 million are categorized as early-stage funding and we have surmised that these fall into growth and customer acquisition. Any category above where the average deal size exceeds $30 million is categorized as late-stage and is for market expansion or pre-IPO preparations. While there are exceptions in each category, the purpose is to provide trends rather than hard numbers for reporting. We will constantly evaluate areas for improvement on a large data set going forward.

Funding in, Seed/Angel stage and late Stages witnessed a fall in 2019 compared to 2018. It has to be pointed out that the number of deals fell in all stages without exception, with the most dramatic fall showing up in late-stage deals, where it fell by 33%. Funding in Seed/ Angel stage fell by just 7% and this stage saw total funding of $12 billion in 2019 compared to $13 billion in 2018. Late-stage funding fell by a whopping 27% and garnered $161 billion in 2019 down from $220 billion in 2018. Early-stage funding saw an increase of 4% and attracted $122 billion up from $118 billion in 2018.

According to the Global Startup Funding Report by HexGn, the strong performance of early-stage deals points to the availability of a healthy pipeline for 2020 and continued interest and push for startups. However, the fall in late-stage deals cannot be attributed to geographical influences as there are underlying reasons for them, which we have highlighted in the report.

There is a continued push for IPOs in 2019. Startups increasingly looked at debt financing as a go-to option before listing with total debt financing deals increasing by $11 billion from 2018 to reach upwards of $35 billion in 2019. Another favoured exit route or additional funding option was a secondary market transaction that saw a buoyancy of $2.6 billion compared to 2018 and saw deals touching $7.3 billion from $4.7 billion a year ago. Listing of Uber, Lyft are just examples of a larger push towards accessing equity markets for funding.

How these IPOs have been received also points to the overall liquidity in the startup ecosystem as well as gives confidence to investors on exit probabilities and a continuing virtuous cycle of startup investment. Total PE funding in startups fell by $8 billion globally and PE investments touched $21 billion down from $29 billion in 2018. A realignment of strategies and weaker exits may be slowing down the funding in late-stage deals. This could in turn further impact successful exits for other investors who have taken the punt in the early stages.

The other aspect is the access to equity markets for some companies. Countries, where the equity markets do not have the scale or appetite for new age startups, will increasingly look to list in bourses that can either match the scale of their valuations or ambitions and can understand the underlying value proposition. With security implications being brought into the picture, this avenue is looking increasingly less positive and investors could look for direction on this.

2019 saw a total of 31 deals above $1 billion compared to 36 deals in 2018. The total value of funding in deals over $1 billion fell to $48 billion from $76 billion a year ago. There were 77 deals over $500 million compared to 93 deals in 2019 and funding totalled to $29 billion from $36 billion a year ago, according to the Global Startup Funding Report by HexGn.

Regional Summary : Global Startup Funding Report 2019

According to the Global Startup Funding Report by HexGn,, while 2019 was dominated by news on the trade war, US economic growth and unemployment numbers, the standout story for us was the strength of the startup funding. The overall funding for North America in 2019 stood at $155.3 billion against 154.7 billion in 2018.

While the numbers appear flat, in 2019 the funding in North America was 53% of global funding, compared to a share of 44% a year ago. Thus, strengthening North America’s lead in the new age technology race.

The top 25 deals contributed to 20% of the total funding in 2019 at $31 billion compared to 18% a year ago, led by the big fundraising by WeWork, which alone raised $11.75 billion in 2019.

However, the devil lies in the details. While funding levels remained the same, the number of deals fell by 22%. It appears that concerns of valuations heating up are true as we saw an increase in deal sizes across the board.

The average deal size increased from $16.59 million in 2018 to $21.74 million in 2019, a whopping increase of 31%. And this increase is not attributed all to the big names. Even deal size for the bottom 40% increased by 24% in a clear indication that too much money is chasing too few deals and will be something to watch in 2020. However, it would be too early and rash to say we are looking at a startup bubble in the making. It could point to a cooling off in startup funding in the first half of 2020.

Global risks of geopolitics, technology exclusion, trade wars and the recent COVID-19 pandemic are larger risks for startup funding in 2020.

According to the Global Startup Funding Report by HexGn, the biggest change in funding numbers for 2019 happened in Asia and not in a positive way. Last year the startup funding in Asia was almost the same as in North America, with only a 3% difference between the two. This year the startup funding in Asia is just a little over half that in North America.

Total funding was down by 43% from $150 billion to $86 billion, the number of deals also fell but at a much slower pace at 17%. Asia also happens to be the region with the lowest disclosed to undisclosed ratio at 63% compared to 70% and above in all other regions.

At a time when the average deal sizes have increased in all other regions, it fell in Asia by 33%. Even after this, the deal size is higher than in North America by $6 million at $27 million per deal. Last year it was $40 million on average per deal.

The biggest change has come at the top in Asia where the contribution of the top 2% deals in the region to overall funding dropped from 64% last year to a more realistic 55% this year. Last year the top 2% deals were worth $95 billion, more than the total funding this year.

However, the bottom 40% of the deals contribute more to the overall funding in Asia, which was 4% in 2018 and rose to 5% in 2019. However, with a greater disclosure in deal values, it would probably be on par with other regions. The only silver lining in Asia this year could be that the bottom 40% didn’t see a falling pattern as much as the upper half. Such were the times that the silver lining is not in terms of growth but how much less the fall was compared to other benchmarks.

According to the Global Startup Funding Report by HexGn, no other region has been in as much turmoil as Europe, thanks to the dwindling auto sales and recession fears in Europe, France’s move to increase working hours, and UK’s tryst with Brexit. Despite all the negativities surrounding the European ecosystem, startup funding in the region painted a happy picture. Given its sufficiently large startup ecosystem, a growth of 15% over its $40 billion funding last year shows the underlying strength of the startup ecosystem to find niches for growth and innovation.

Total funding was up from $40 billion to $46 billion but the number of deals fell by 12%, which is as per trends in other regions as well. The ratio of disclosed to undisclosed deals also improved by four percentage points which is also a healthy growth and points to more transparency.

In spite of a declining number of deals and an increase in overall funding, the average deal size in Europe was the lowest across all regions at $10 million, which begs the question whether European startups are valued low because of limited market size or limitations of the earning potential.

A common theme in 2019 is that the top 2% of the deals always rise when the ecosystem is healthy, meaning more companies move to late-stage funding and the deal sizes get bigger. This was the case with Europe as well where the top 2% deals increased by $4 billion to reach $25 billion from $21 billion a year ago which is 69% of the total increase in funding seen in 2019.

Unlike other regions, the funding value of the bottom 40% of deals fell more sharply than the overall trend in funding. In North America which saw funding levels that were more or less constant with the contribution of the bottom 40%, fell by only 4% in absolute terms. Even in Asia where overall funding dropped by 43% at the bottom, the funding only decreased by 37%. In all other regions combined like South America, Oceania & Africa the bottom increased by 21% while overall funding increased by 40%. In Europe the bottom 40% fell by 24% while overall funding increased by 15% a huge spread. It could be a case of smaller deals being disclosed or a sign of weakness in the next wave of funding.

According to the Global Startup Funding Report by HexGn, startup funding in the regions of South America, Oceania & Africa combined were at $8.4 billion. This was just 18% of the funding in Europe and just 6% of the funding in Europe. The number of deals is also a fraction of other regions on their own. Accordingly, we will be analyzing the trends of the three regions combined as long as the dataset remains large enough to draw meaningful insights.

The funding in the three regions combined grew by 40% to reach $8.4 billion in 2019 from $6 billion last year. The number of deals though slipped by 13% leading to an increase in the average deal size by 76%. In 2019 the average deal size was $11 million compared to $6.3 million a year ago.

This was higher than the average deal size in Europe but didn’t match the sizes in North America and Asia. However, this is a big increase and we are looking at what could be a breakthrough year for the three regions. While Oceania, led by Australia saw funding grow by a mere 4% to reach $2.7 billion compared to $2.6 billion a year ago. South America was the biggest fund draw of 2019 in this grouping and attracted more funding than Australia, probably for the first time. South America attracted a total funding of $3.8 billion, an increase of 54% compared to $2.5 billion in 2018. Africa grew the fastest in the grouping with funding increasing by 102% compared to a year ago to reach $1.9 billion, in 2019, from $932 million in 2018. One has to note that 1.3 billion people call Africa their home compared to about half a billion in South America and just 42 million in Oceania. We will continue to see South America and Africa pulling away from Oceania in terms of funding as the economies continue to grow and people’s income rises.

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