Go with the flow

Tech cities thrive on venture capital investment. So, where in the world is the money going?

Venture capital (VC) investment is a key lead indicator of the destinations that matter for tech. Big capital injections usually precede investment in people and places, so identifying the places it is flowing to tells us which markets to watch.

Sand Hill Road: the Wall Street of Tech

Sand Hill Road, located at the heart of Silicon Valley is the global epicentre of VC. Established in the 1970s, it has been the source of early funding of some of the biggest names in Western tech. Silicon Valley, San Francisco and the wider Bay Area emerged to become one of the most important global tech hubs as a result.

But as other global centres of VC funding have emerged, so global tech hubs have multiplied. A decade ago 73% of all global VC was invested in the United States (based on analysis of top destinations). Last year, with the overall market vastly expanded, the US global share stood at 46%.

The rise of China

For every US tech giant there is a Chinese equivalent. The US has ‘FAANG’ (Facebook, Amazon, Apple, Netflix, Google). China has ‘BAT’ (Baidu, Alibaba, Tencent) and now ‘TMD’ (Tuotiao (Bytedance), Meituan Dianping, Didi). These home-grown tech giants have propelled China into a dominant tech force. China accounted for 21% of all global VC funding in 2019, up from 5% a decade ago. Beijing was the biggest recipient of that, capturing $83 billion of VC investment in the last three years (to Sep 2020), the largest volume globally over the period. Close to regulators, some of China’s largest tech firms are headquartered in Beijing. 

The growth of China as a major tech player has significant implications for property demand beyond China. Tech occupier demand in the West has been driven by Amazon and major national players. We are already starting to see a whole new wave of demand from the big Asian players heading West.

Silicon Valley vs San Francisco

Taken as a whole, the San Francisco Bay area still dominates global funding, but analysis of its components reveals some interesting trends.

A decade ago Silicon Valley received more investment than its northern neighbour, but San Francisco has since outperformed it as talent and companies flocked to the vibrant City by the Bay. VC investment into the city of San Francisco exceeded $70bn over the last three years. Volumes have surpassed those of Beijing both this year and last.

Silicon Valley, meanwhile, saw $59bn of investment between 2018 and 2020. Comprised of 18 individual towns and cities (see chart) in the Santa Clara Valley, Silicon Valley is home to Apple, Facebook and Google, and remains the hub for big tech. Changing trends in living and working, accelerated by the pandemic, are bringing new relevance to its suburban campuses.

London calling

The rest of the VC top 10 is dominated by the US and China, with one exception: London. The UK capital stands 7th with some $24bn invested in the last three years, and 5th in 2020 (to September). London’s development as a VC hub was a natural progression for this global financial centre. This funding environment has helped to cement its position as Europe’s premier tech city.