3 ms·

Why is there most capital available in America? Why would investors choose to go there if businesses were not easier to start, grow and exit?

disgruntledphd2 7y ago
Because the dollar is the world reserve currency, and lots and lots of large pension funds, university endowments and family offices spend tiny proportions of their assets on VC (as it's expected to be uncorrelated with market returns). VC's tend to be look a person in the eye and judge his (almost always) character. They don't like travelling, so most of their investments are made in the Bay Area. Coupled to this, there's much more availability of angel funding because of the previous unicorns (paypal, eBay, Google, Facebook et al) so it's easier to get started. There are definitely some cultural issues at play also, but fundamentally the reason that the US has such a high proportion of tech giants (which seems to be what you're focusing on) is the low cost of capital caused by the dollar's exorbitant privilege.
- manigandham 7y ago
  You realize other countries have VCs too right? Yet hundreds of foreign billions still go to America because it's a better environment for innovation and produces bigger and more impactful companies. Your 3rd point even relies on it.
  - disgruntledphd2 7y ago
    Venture capital by selected countries: https://www.statista.com/statistics/1071105/value-of-investments-by-venture-capital-worldwide-by-key-market/ https://www.statista.com/statistics/1071105/value-of-investm... Note that it's per capita, and Israel has a population of 8mn, versus the US's 330mn. I think it's pretty clear that most VC funding is given in the USA. And note that the terms are often much better, and funding is accessible earlier. This article explicity states that you want to get seed funding in the US if you want to maximise your valuation. See: https://medium.com/sosv-accelerator-vc/what-does-seed-funding-look-like-across-the-world-86f3ebe9cf0a https://medium.com/sosv-accelerator-vc/what-does-seed-fundin...
  - LunaSea 7y ago
    Yes but these companies also largely exist because you have a deregulated market whereas the European Union is a much more regulated market. These regulations provide for worker rights, productions and consumption safety, product quality and much more. Something America is lacking in completely. You also have a government and department of defense that helps a lot of your big multinationals grow and kill it's foreign competitors. You can look at the acquisition of Alstom by General Eletric as a good example.
    - manigandham 7y ago
      Well that's the point. US has lower regulations and more fluid employment which leads to bigger and more innovative companies. America isn't as nationally protectionist as China though, although that will now change with this pandemic.
      - LunaSea 7y ago
        America is very protectionist actually. And what you call fluid employment I call bad jobs.
        CamperBob2 7y ago
        And what you call fluid employment I call bad jobs. I guess that explains why people do whatever they can to migrate from the US to your country. They do that, right?

disgruntledphd2 7y ago

Because the dollar is the world reserve currency, and lots and lots of large pension funds, university endowments and family offices spend tiny proportions of their assets on VC (as it's expected to be uncorrelated with market returns). VC's tend to be look a person in the eye and judge his (almost always) character. They don't like travelling, so most of their investments are made in the Bay Area. Coupled to this, there's much more availability of angel funding because of the previous unicorns (paypal, eBay, Google, Facebook et al) so it's easier to get started. There are definitely some cultural issues at play also, but fundamentally the reason that the US has such a high proportion of tech giants (which seems to be what you're focusing on) is the low cost of capital caused by the dollar's exorbitant privilege.

manigandham 7y ago
You realize other countries have VCs too right? Yet hundreds of foreign billions still go to America because it's a better environment for innovation and produces bigger and more impactful companies. Your 3rd point even relies on it.
- disgruntledphd2 7y ago
  Venture capital by selected countries: https://www.statista.com/statistics/1071105/value-of-investments-by-venture-capital-worldwide-by-key-market/ https://www.statista.com/statistics/1071105/value-of-investm... Note that it's per capita, and Israel has a population of 8mn, versus the US's 330mn. I think it's pretty clear that most VC funding is given in the USA. And note that the terms are often much better, and funding is accessible earlier. This article explicity states that you want to get seed funding in the US if you want to maximise your valuation. See: https://medium.com/sosv-accelerator-vc/what-does-seed-funding-look-like-across-the-world-86f3ebe9cf0a https://medium.com/sosv-accelerator-vc/what-does-seed-fundin...
- LunaSea 7y ago
  Yes but these companies also largely exist because you have a deregulated market whereas the European Union is a much more regulated market. These regulations provide for worker rights, productions and consumption safety, product quality and much more. Something America is lacking in completely. You also have a government and department of defense that helps a lot of your big multinationals grow and kill it's foreign competitors. You can look at the acquisition of Alstom by General Eletric as a good example.
  - manigandham 7y ago
    Well that's the point. US has lower regulations and more fluid employment which leads to bigger and more innovative companies. America isn't as nationally protectionist as China though, although that will now change with this pandemic.
    - LunaSea 7y ago
      America is very protectionist actually. And what you call fluid employment I call bad jobs.
      - CamperBob2 7y ago
        And what you call fluid employment I call bad jobs. I guess that explains why people do whatever they can to migrate from the US to your country. They do that, right?