Is the Golden Age of Startup Tech Nearing Its End or Just Beginning?
There’s a good argument that we’re in the midst of a “golden age” of startup tech entrepreneurship. In 2018, the last full year on record, startups received a new record $130.9 billion of funding, across a total of 8,949 deals. In 2017, there was only $83.0 billion of funding, with numbers as low as $27.2 billion in 2009, in the wake of the economic recession.
For aspiring tech entrepreneurs, this would seem like good news—but is this golden age of tech startups going to last for years to come, or is it already approaching the beginning of the end?
Why the Golden Age of Startup Tech Exists
Let’s start by examining some of the factors that have led to such flourishing conditions for startup tech companies:
- The bull market. Since the 2008 economic crisis, we’ve been in a bull
market—depending on how you choose to measure it, it can be considered the longest bull market in history. Economic conditions have been prosperous and almost universally positive, which has lined investors’ pockets with cash and filled a generation of new entrepreneurs with optimism. With more consumer confidence and more available capital, securing funding is much easier.
- Available tools and technologies. It’s also helpful that entrepreneurs have access to more tools and technologies than ever before. Coworking space options are diverse and readily available, allowing new entrepreneurs to start businesses without needing to buy or lease their own expensive office space. The abundance of communication tools makes it possible to work with people all over the country, or even all over the world. And there are thousands of online forums, websites, and other resources designed to help entrepreneurs get the information and direction they need to be successful.
- Tech unicorns and success stories. Since 2000, there have been hundreds of amazing success stories, from juggernauts like Google rising from practically nothing in the late 1990s to smaller operations whose founders cash out for a few million dollars. Similarly, tech unicorns like Uber have reached billion-dollar valuations relatively early in their course of development. These massively profitable companies have investors salivating; everyone’s looking for the next big opportunity, and that means more funding is available than ever before.
- The blue ocean of tech. Tech is advancing quickly enough that new business opportunities are constantly emerging. For example, a decade ago, social media was just emerging from its infancy; today, it’s used as an advertising tool by millions of businesses. And only with the advent of reliable 4G internet has app-based ridesharing been possible. This prevalence of new technologies has led to plenty of blue ocean opportunities—new niches for businesses to explore, rather than simply competing with businesses that already exist.
- Motivation and enthusiasm. Subjectively, to many people, tech is a sexy and exciting field. Being an entrepreneur is something of a status symbol, and any business related to technology is seen as potentially highly lucrative. Accordingly, people are motivated to start their own businesses in the tech industry—and potentially generate enough wealth to sustain them for a lifetime. This enthusiasm is also contagious; the more people we have excited about startup tech companies, the more excitement they generate by proxy.
Threats and Complications
However, there are some threats that could jeopardize the health of our startup tech marketplace, including:
- A looming recession. There are several “recession signals” that could be indicating the rollout of an economic recession. Of course, economists are never in agreement; there are always camps of people claiming that a recession is coming or that the bull market will continue for many years to come. Still, this is the longest bull market in history (so far), and it’s only a matter of time before things cool off, even if it’s only for a brief period. If a recession does set in, it could disrupt the momentum of optimism that millions of investors and entrepreneurs have come to enjoy.
- More money, fewer deals. It’s interesting to note that while the total amount of deal funding has increased in the past year, from $83.0 billion to $130.9 billion, the total number of deals has actually decreased from 9,489 to 8,948, down from 2015’s top of 10,740 deals. This is partially due to a distribution problem; investors are much more likely to invest in a stable, “sure-bet” startup than a riskier fringe case. So while $130.9 billion of funding was available in 2018, most of it was contributed to businesses with the highest possible chances of success. This minimizes the amount of available funding to smaller businesses, resulting in a disproportionate overall distribution—despite high overall numbers.
- Consolidation. It’s also worth noting that the tech companies in existence are quickly gobbling up new startups to offer as many services as possible. Corporations like Amazon, Apple, and Google can no longer be defined as offering a single service, but instead are reaching their tendrils into as many areas of exploration as possible. It’s not feasible for a brand-new startup to compete with juggernauts of this size, so over time, this could reduce the number of potential entry points for new entrepreneurs.
So is this golden era of startup tech nearing its end already? It’s hard to say for sure, just as it’s hard to assign a label like “golden era” in the first place. While there are many conditional factors likely to sustain tech entrepreneurship for many years (including propagating coworking spaces and a healthy motivation to start new businesses), there are also some threats that could stifle growth. It remains to be seen which collection of factors will overpower the other in influence.