Whether you’re a Democrat or Republican (or Green Party, Independent, Progressive, etc.) there is no debate about the influx of venture capital (VC) dollars invested since Donald Trump stepped into office. In fact, the National Venture Capital Association (NVCA) found that the amount of VC investment was the highest it’s been since the dot-com era in the late 90s. Conversely, the actually number of companies that received this funding marked the lowest level since 2012.
What is important to also consider is how/if these funds are going to be helpful for cities that have been typecast as “traditional” or “rustbelt.” Moreover, Trump’s travel ban is projected to only do damage to startups’ bottom line and severely limit the pool of qualified workers from which they have to choose. Yet, for other tech companies, Trump’s questionable policies seem to be beneficial.
Cold Hard Facts
According to the NVCA, 2017 saw $84.2 billion in VC investment. This is a 16.3% increase since 2016. In conjunction with the boost in overall startup funding, investment into unicorns (i.e. those valued at $1 billion+) reached a near record high in 2017. In fact, the 73 unicorns represented 23% of the total capital invested across the U.S. startup industry.
It seems, however, that it’s a matter of quality over quantity, as the amount of deals closed dropped from 8,635 in 2016 to 8,076 in 2017. Moreover, the NVCA also noted that the “median age of companies raising institutional angel & seed rounds has grown a staggering 38% to 2.42 years, with companies at the Series A round coming in at just over 3.5 years of age, and Series B companies typically raising those rounds at around year five, on a median basis.”
Interestingly, the venture-backed IPO environment saw a large upsurge as well, yielding an uptick from 41 IPOs in 2016 to 58 in 2017. Moreover, the Dow has surged over 30% since Trump’s inauguration. But it behooves all of us to accept this growth with caution.
Geography Isn’t Changing
One thing is for sure, the same hotspot cities and the type of startups that historically attracted VC are still smoldering. The concentration of investment is centralized around only a few markets, areas which have largely remained unchanged since the mid-90s. Moreover industry-wise, up-and-coming R&D technology startups are continuing to attract the bulk of the capital.
To be fair, even before Trump came into office, the top quintile of VC funding remained in Massachusetts, California, and New York, according to State Science and Technology Institute (SSTI). In concurrence with SSTI’s findings, the Information Technology & Innovation Foundation (ITIF) found that these three states ranked in first, second, and eleventh respectively in the 2017 New Economy Index.
While this stability is great for Massachusetts, California, and New York, other states are having major difficulty completing in the global economy [we’ll link the first article here]. This is highly disappointing for areas largely comprised of rural, rust-belt cities that were promised the moon from president Trump.
VC Investment Intensity
In the U.S., VC investments represent under a half a point of the total GDP. However, the SSTI points out another important finding from 2017: VC Investment Intensity, which measures VC investment as a share of Gross State Product, illuminated the same repeating pattern from the top ranking cities, despite many “rustbelt” cities going red and hoping for a change from the status quo.
For instance, Massachusetts, California, and New York are all about triple the national average for VC capital segment in the GDP. In addition, research from City Lab found that the top ten metro areas account for over three quarters (77.6%) of the overall venture capital investment in the U.S.
At this point it should be noted that none of this information is meant to discredit or undermine the importance of states like Massachusetts, California, or New York, but rather to demonstrate the cyclical nature of VC investment and the difficulty for regions consisting largely of “rustbelt” cities.
Social Justice Skyrockets
According to Mercury News, President Trump has been a goldmine for startups using technology “to address issues of social justice, government accountability and health care.” For instance, the app Countable, which helps citizens reach out to their congressional representatives, has soared from about 5,000 to 10,000 unique users a day to 100,000 to 200,000. Other apps such as CrowdJustice, Nurx, and Arrived have all skyrocketed from the general public’s recent spike in interest in politics and social inequalities.
Venture capital may be on the rise, but it could easily come crashing down twice as fast. The Trump administration said it plans to rescind, or at least postpone, an Obama-era program known as the International Entrepreneur Rule. This bill would allow non-U.S. citizens who launched businesses in the U.S. to live in the country for a renewable 30-mount term, provided they secure $100,000 in government grants or raise $250,000 in VC funding.
This is a rather unfortunate turn of events considering that the ITIF found that a third of U.S. innovators were born outside the country, despite the fact that immigrants only represent 13.5% of all U.S. residents. This also makes the impact of the Trump’s travel ban (wherein refugees and immigrants from seven countries including Iran, Iraq, Syria, Yemen, Sudan, Libya, and Somalia have been effectively prevented from entering the United States) even more adverse for startups.
Where Do We Go From Here?
Ultimately, it’s important that we stay well-informed about Trump’s policies and what they mean not only for startups, but for the immigrant population that helps these entrepreneurial industries thrive. Moreover, it’s important that investors don’t chase IPOs blindly and that they proceed into any market with caution. If the burst of the dot-com and housing bubble taught us anything, it’s that everything that goes up must come down.