As I sit here in Silicon Valley, it is difficult to digest all of the world events and consider the implications for the innovation economy. When I talk to friends, colleagues and clients, we share feelings of uncertainty, but always gain confidence each time we meet an entrepreneur trying to solve a challenging problem or find a company on the path to change an industry. Optimism may have dipped, but in tech it remains contagious.
Silicon Valley Bank recently released its eighth annual Startup Outlook report, which captures the views of technology and life sciences executives. We heard from nearly 1,000 respondents, primarily in the US, the UK and China. The survey was conducted in November last year, immediately after the US presidential election. Most respondents are startup executives of companies with fewer than 50 employees and less than $10m in annual revenue.
Not surprisingly, we do see signs of uncertainty that naturally come during times of change, whether in business or political direction. But these startup executives also tell us they are hiring, plan to raise venture capital, expect M&A to grow and see an expanded role for corporate venture.
Highlights
Business conditions
• 57% of executives believe US business conditions will be stronger than 2016. Still, the number of respondents who think conditions will improve year over year has declined by 25 percentage points since 2014.
• Among UK respondents, one in five startups is planning to set up at least an outpost office in another country in Europe because of Brexit, but a large majority intend to keep their headquarters in the UK. Following the Brexit vote, 48% of UK startups expect conditions in 2017 to improve over last year, down 10 percentage points from the same time last year.
• Startups in China were the most bullish on improving business conditions, with 74% expecting 2017 to be better, down from 85% a year earlier. Silicon Valley Bank opened a Beijing office in February 2017, and also has offices in Shanghai and Hong Kong.
Fundraising
• No matter their location in the US, UK or China, more than 80% of startups say raising money is “challenging” or “extremely challenging”, an increase over the previous year.
• In the US, 51% of US startups say their next source of funds is most likely to be venture capital. This is despite fewer early-stage fundings by VCs last year.
• Highly relevant to this audience is that corporate investors are increasingly viewed as an important capital source, cited by 11% of US respondents, surpassing private equity at 8%.
Exits
• For the second year running, acquisition continues to be the dominant realistic long-term exit strategy of US startups. Despite public interest and excitement around startup IPOs, many more startups are acquired than go public.
• Nearly nine out of 10 startups predict as many or more mergers and acquisitions in 2017. Fully half say they expect more acquisitions, an increase from 43% a year ago. We note that there is an increased appetite among acquirers outside the technology sector, creating additional opportunities for startups.
Hiring and diversity
• 90% of US startups say that finding appropriate talent is difficult, down five percentage points from last year. It is too soon to call it a trend, but it does appear that the very tight labour market has loosened a little.
• 70% of US startups say they do not have women on their boards and 54% employ no women in executive positions.
No progress in moving women into tech leadership
It is always a little soul-destroying to see that for all the work we think is being done to bring more women into tech leadership roles, the survey suggests that in the aggregate there has been little change.
Why don’t we see more progress? It may be that we thought growing visibility of the few high-profile women in top tech jobs and among VCs indicated more progress through the ranks. Not only have the ratios not changed much for women, but our survey also found that just one in four US startups has programs in place to increase the number of women in leadership roles. And that has not changed year over year.
We see so much evidence that companies supporting inclusion and diversity see tangible results to their bottom line. In 2017, it is more important than ever that we stamp out some of the unacceptable behaviours and move the needle to diversify tech ranks from the bottom to the top.