VC Finance Goes Global

By Gaia Freydefont

The triumph of the VC industry, which started in America, is beginning to gain traction internationally and expanding into the broader financial industry, with 51% of deals by value this year, taking place outside of the US.

With the exception of China, the VC industry and innovation is flourishing in Asia and starting to gain momentum in Europe, which is currently providing a home to 65 “unicorns”; that is, private startups now worth over $1 billion.

Over the last 50 years, the venture-capital (VC) industry has funded enterprising ideas which have been transformative to the world economy, and as venture investment begins to expand on a global scale, startups outside of America are beginning to take advantage of the opportunities VCs offer.

The VC industry originated in the 1960s and in some ways, has been considered an exception in the financial world.

But the impact of VCs has been important, with America’s VC funds having helped once small-scale businesses to gain momentum that are now worth $18 trillion of the total public market.

This represents the fact that the VC industry is responsible for financing the companies which created big tech companies, such Google, as well as iPhones, electric cars and MRNA vaccines, to name a few.

The incredible growth of the VC space is prompting the globalisation of the VC industry, pushing to channel risk-capitals into a broad compass of industries, making VCs more approachable to ordinary investors.

A larger reservoir of capital seeking a more diverse space of innovative ideas will certainly bolster competition, and in turn will likely boost innovation, ultimately leading to a more dynamic space for the VC industry and other industries globally to grow.

Up until now, the VC boom has been concentrated on small set of consumer-tech firms, including Airbnb and Deliveroo.

However, the VC industry is starting to open up to ordinary investors and mainstream financial firms as a result of increased competition, as VCs are prompted to try out new strategies including following up on individual innovators and allowing entrepreneurs to gain exposure more cheaply.

The VC industry does come with some risks, including the fact that money can become corruptive to firms making generous capital, and returns are diluted as more money comes in, meaning ordinary funds might find that returns are lower than expected in the long-term.

However, the VC boom will certainly build up competition and likely result in more innovation, as the previous VC boom saw investors making change to the financial landscape by pursuing riskier and more adventurous business ideas.

At this point in time, with our environment consisting of cloud computing and remote working, the limits of what is possible when creating a business are starting to disappear, creating very exciting prospects for VCs going forward.

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