Tuesday, May 26, 2015

Two Graphs About the Future of Startup Funding

Since the turn of the millennium, startups have taken the world by storm. In the past, building a company required bound and committed investors. Nowadays, any college student with an idea can potentially become the CEO of a billion-dollar company. 

With this evolving landscape, we were most interested in discovering trends in venture funding. Knowing this information could help startup founders develop strategies to capture venture funding in the future. 

Using datasets from CrunchBase drawn from Github, we address three questions. 

1. How have Industries Invested in Changed Over Time?

Below, we map the top 14 funded industries by number of rounds of funding given. We do this for four different years, choosing 2000 as a starting point, 2001 to see the effects of the dot-com bubble burst, 2007 to see the effects of the financial crisis, and 2014 as our ending point.

We see several trends between 2000 and 2014:
  1. Proportion of funding for Biotechnology steadily increases between 2000 and 2014. In 2000, biotechnology doesn't crack the top 14 industries, but by 2014, it represents the second largest sector, behind software. 
  2. Despite the dot-com bubble bursting in 2000, software has remained at around 20% throughout the past 15 years. 
  3. Mobile startups gain a larger share over time, but this share does not grow as much as we expect (7% until 2007, 9% in 2014). Mobile-focused startups do not monetize as well as other startups do, and thus, get less validation through venture funding as well. 
  4. Health Care broke into the top 14 sectors around 2007. Startups are beginning to break into the healthcare industry due to disruptive legal reforms, an aging population needing more care, and the development of new health technology.
  5. The proportion of funding taken by Advertising startups declined between 2007 and 2014. This is because of the purported popping of the Ad-Tech Bubble and the fact that the industry is already dominated by two advertising giants: Google and Facebook
2. Which States are Most Active in Funding Startups?
We visualize the average funding amount and number of companies for each state and funding round (Series A to E+) in the maps below.

Here are some noteworthy points:
  1. As expected, California and New York do well, receiving high funding amounts as well as rounds by many companies. They deserve their titles as start-up hubs.
  2. That said, start-ups can spawn anywhere. South Dakota, Iowa, and Kentucky had one round of Series B, C, D funding respectively, but their amounts were impressive.
  3. Illinois has an outstanding record of producing large-scale companies, producing 18 rounds of Series D funding at a staggering amount. 
  4. Other start-up hot beds include Florida, Texas and Massachusetts.
3. How does this help you?

Looking at these results, it appears that recent trends in startup funding include the growing popularity of industries that benefit people in tangible ways, such as Biotechnology and Clean Energy. However, on a short-term basis at least, it seems that there is a lot of stability in the funded industries - staples like Software, E-commerce, and Enterprise Software remain around the same year to year. Noticeable trends such as the popularity of Biotechnology are largely policy-based: healthcare reforms are opening up new doors for startup founders to step in and create innovation. 

The map shows that California is still at the forefront of startup funding, although New York is gradually building a reputation for venture capital activity. Other states, though producing a few high-value investments, don't come close to California or New York.

Code is included in: https://github.com/barbaraz/DataBucket/tree/master/Crunchbase_Project


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