Large tech companies have recently garnered attention over concerns they’re crowding out healthy competition. Some predict that after the pandemic, large tech companies will “dominate” relative to smaller companies. While tech companies across the board are experiencing strong financial performance, established private companies are raising more money relative to startups than in the past. A notable exception: AI startups, which are keeping pace with established private companies.
I. Everyone is doing well; established companies are doing better
This analysis assesses the revenues of prominent, publicly traded tech companies (“public companies”), the funding raised by private companies other than startups (“established private companies”), and the funding raised by startups (“startups”). According to these metrics, tech companies are doing well across the board. The revenues of public companies—represented in Figure 1 by Amazon, Apple, Facebook, Microsoft, and Google-—have consistently increased since 2011. Between 2011–2014 and 2016–2019, the combined revenues of these companies more than doubled.
Figure 1. The chart is based on the 10-k forms of Alphabet, Amazon, Apple, Facebook, and Microsoft.
Private tech companies—established and startups combined—are also doing well. As shown in Figure 2, software, hardware, internet services, and information technology companies—collectively “tech companies”—display a trend similar to that of public tech companies. As with public tech companies, between 2011–2014 and 2016–2019, the money raised by all private tech companies more than doubled.
Figure 2. This chart is based on Crunchbase data. Crunchbase classifies every company under multiple “category groups.” Companies were included here if software, hardware, internet services, or information technology were among their category groups. These categories are overlapping. This chart does not include an anomalous $100 billion raised by Broadcom Limited in February 2018. Data pulled August 11, 2020.
Startup tech companies are also raising more money than in the past, but they’re raising a smaller fraction compared to established private tech companies. As shown in Figure 3, the trend is consistent across software, hardware, internet services, and information technology. Between 2011 and 2019, tech startups’ share of money raised by private tech companies decreased from 51 to 31 percent.
Figure 3. This chart is based on Crunchbase data. Crunchbase classifies every company under multiple “category groups.” For this chart, companies are classified as “tech” if software, hardware, internet services, or information technology are among their category groups. These categories are overlapping. A company is classified as a startup if the funding round in question is any of the following: pre-seed, seed, angel, series a, series b, or venture round. This chart does not include an anomalous $100 billion raised by Broadcom Limited in February 2018. Data pulled August 11, 2020.
II. AI tech startups are an exception
Some types of tech startups are doing better than others. Within the four “tech” categories—software, hardware, internet services, and information technology—additional categories co-occur at different frequencies. For example, one might view a company in both the software and retail categories as a retail tech company. Among these additional categories, artificial intelligence is growing most rapidly. As shown in Figure 4, between 2011–2014 and 2016–2019, AI tech startups increased their funding by more than eight-fold.
Figure 4. This chart is based on Crunchbase data. Crunchbase classifies every company under multiple “category groups.” The categories in this chart were included only if they co-occurred with “tech” categories as defined in Figure 3, i.e., software, hardware, internet services, or information technology. A company is classified as a startup in this chart if the funding round in question is any of the following: pre-seed, seed, angel, series a, series b, or venture round. The ten categories included here are those with the highest growth rate among categories with at least $1 billion of total money raised between 2011 and 2014. This chart does not include an anomalous $100 billion raised by Broadcom Limited in February 2018. Data pulled August 11, 2020.
Contrary to the general trend of startups raising a declining share of private tech company funds, AI tech startups are keeping pace with established private tech companies. As shown in Figure 5, after a small relative dip in 2018 and 2019, AI tech startups in 2020 are raising more than established private tech companies.
Figure 5. This chart is based on Crunchbase data. Crunchbase classifies every company under multiple “category groups.” This chart includes only companies in both the artificial intelligence category and one of the “tech” categories, as defined in Figure 3 (i.e., software, hardware, internet services, or information technology). A company is classified as a startup in this chart if the funding round in question is any of the following: pre-seed, seed, angel, series a, series b, or venture round. Data pulled August 11, 2020.
At Foretell, we are tracking and forecasting the financial health of tech startups relative to established tech companies. These metrics inform the scenario “Tech Companies Threaten Democracy.” You can forecast the revenues of prominent, public tech companies here. A forecast question on the financial health of tech startups is forthcoming.
To stay updated on what we’re doing, follow us on Twitter @CSETForetell.