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30 Nov, 2020
The number of cross-border venture capital investments has increased by 5 times since 2000, and it continues to grow. At Unicorn Nest, we decided to examine the trends in cross-border investments in the latest period, since 2014, and here are some of the key takeaways.
But firstly, let’s clarify what we are writing about. Cross-border investing refers to a financing arrangement that occurs outside a country’s borders and could help to find resources beyond domestic borders.
Cross-border venture capital investments play an important role in scaling up high-growth companies. Policymakers express concerns that foreign VC investments transfer the majority of economic activity to the investor country. The startups however welcome foreign capital, expertise, and networks that usually go along with cross-border investments.
Startups are often wary of international investments, especially from VC-funds located far from a startup’s incorporation country. This article also explains geographical connections between VC funds origins and their countries and spheres of interest.
Methodological solutions for this research were based on UN data, gathered by ML-powered Scraping Spiders, its comprehensive, verified and constantly updated dataset.
The number of cross-border deals has grown dramatically since 2000, and has increased from around 1,000 deals in 2,000 to over 5,000 in 2018. The trend is constantly growing, with a small decline in 2009 due to the financial crisis.
In terms of market share, the share of cross-border investments has been constantly growing since 2012, from less than 20% of deals in 2012, to over 25% in 2019.
Let’s examine some of the figures in greater detail.
For our research we have focused on the time period from 2014 to 2019. We have collected information about 117,285 deals in 101 countries with 30,269 funds and 80,387 startups in 726 industries for this time period.
So far 2018 was the most prolific year for cross-border investments, hitting a historical record of 5,000+ deals.
The number of cross-border deals has been growing YoY from 2014 to 2018, until a small downturn in 2019, and their share constitutes around 25% of all investments in 2014-2019 (Chart 2).
However, if we look at the money raised graph, cross-border investments play a much more significant role, contributing up to 50% of all the money raised (Chart 3).
The highest number of cross-border investments, unsurprisingly, was received by the startups from the US (with Silicon Valley startups receiving as much as 3/4 of investments as the rest of the US — 600+ deals involving Silicon Valley startups and 800+ deals in all other states combined in 2018). Silicon Valley (SV on the chart) was examined separately from other US states to highlight its significance and high share of all deals.
The UK comes second by a number of deals, and the third place is taken by Indian startups, with an exception in 2018, when Chinese startups finished third (Chart 4).
However, when we are talking about absolute numbers, China has attracted almost as much money as American startups (US + Silicon Valley graphs) (Chart 5).
The funds coming from the US are unquestionably the leaders in cross-border investments when it comes to the number of deals. Investors from the UK and China are far behind, participating 4-6 times less deals than American investors.
Speaking about the money invested, American funds are also very much ahead of their competitors from other jurisdictions, having invested more money than funds from all other jurisdictions combined. Chinese investors have only invested as much as Silicon Valley funds in 2017 (Chart 7).
Two countries in green have been consistently attracting more cross-border investment YoY in the period of 2014-2019.
You can compare them with other growing countries by the volume of deals (Chart 8). Countries in red also attracted more foreign investments YoY, with the difference that they had negative dynamics in 2019.
The growth rate of countries by the amount of money raised is different – Argentina attracted 134.9% more money since 2014. Belgium, Singapore, Thailand, Ireland, Mexico, Finland, Indonesia, France and Switzerland have all attracted 30% more investments in 2019 in comparison to 2014 (Chart 9).
The top-10 countries by the average annual growth rate of the number of cross-border deals in 2014-2019 were Indonesia, India, South Korea, the Philippines with positive dynamics in 2019, and the Netherlands, Austria, and Japan with negative one. Top-3 countries for the last five years were Indonesia with a 31,5% growth rate, Portugal with 31%, and UAE with a 22% growth rate (Chart 10).
Funds from Thailand have invested 60,2% more money in 2019 than in 2014, Dutch funds invested 48,3% more, Saudi Arabian ones have increased their cross-border investments by 43,9%. British funds have experienced a tremendous growth of money invested in 2018, but experienced a huge drop in 2019, and didn’t make it to top-3 countries by average growth rate (Chart 11).
Unsurprisingly, software, IT, AI, and e-commerce attract the most cross-border investments. They are the most popular industries all over the world (Chart 12).
We have identified the following industry clusters receiving most cross-border investments:
Some industries have also experienced massive growth of money raised in 2018, but experienced the drop in 2019 rollin back to 2017 levels. Those are internet, e-commerce, financial services, fintech, transportation, payments sectors (Chart 13).
UN research shows a great difference between investment stages for internal and foreign investments. Startups raising late stage rounds have raised 2,5 times more deals from foreign investors (Chart 14).
A mind-boggling majority of money raised at the late stage belongs to cross-border investments (Chart 15).
Cross-border investments play a huge role in the global VC market. We see a greater diversification of portfolio from both well-established VC funds and newly emerging funds from Thailand, Saudi Arabia etc. More and more countries in Asia, Latin America, and Africa attract foreign investments from VC-funds. No matter where the startup is incorporated, nowadays it has great chances of raising a round from a qualified foreign investor.
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