# How much funding will U.S. tech startups raise in the second half of 2021?

Time Spent: ~4 hours

Or, more specifically: How much funding will U.S. tech startups raise between July 1 and December 31, 2021, inclusive? A “tech startup” is a company categorized as one or more of: software, hardware, internet services, or information technology; and, the company is in one of the following funding rounds: pre-seed, seed, angel, series a, series b, or venture round. For the purposes of the forecast, we’re using Crunchbase data.

The buckets and my credences:

• A: < $13bn (0%) • B: [$13bn, $17bn] (15.5%) • C: ($17bn, $21bn] (74%) • D: ($21bn, $25bn] (8.5%) • E: >$25bn (2%)

CSET provided a dataset from Crunchbase, which I copied (see table in footnote).1

## Generating the Outside View

To generate my outside view, I used two methods:

1. A simple linear extrapolation of the data gives a central estimate of $17.065 billion for 2021 H2. • Then, I check how often the residuals of the regression are large enough that, if applied to the central estimate, it would suggest each bucket. • Doing so suggests B: 11/20 = 55% and C: 9/20 = 45%. 2. Compute the lagged difference between period t and period t-2. Then, compute how often the lagged difference falls within the relevant ranges for each of the four buckets. • That is, how often is the change from one period to the next-next period large enough that, if applied to our most recent data (H2 2020), it would suggest each bucket. • Doing so suggests: A: 0%, B: 4/18 = 22%, C: 12/18 = 67%, D: 2/18 = 11%. The simple average of those two gives: A: 0%, B: 38.5%, C: 56%, D: 6.5%, E: 0%. (I don’t think these are the most statistically savvy or sound methods, but it’s the best I have for now!) ## Updating for the Inside View Given that the period t-1 saw growth, how often did t also see growth? • 10/13 instances. Startup funding appears extremely strong in the first quarter of 2021; early-stage funding (for all categories) was$19.7 billion compared with $14.5 billion in the fourth quarter of 2021.2 Tech startups usually account for somewhere between one-half and two-thirds of that and follow similar trends. Simple linear extrapolation suggests total first-half early-stage funding of ~$39 billion, which suggests something like ~$20 billion to$26 billion (if the one-half to two-thirds ratio holds). I expect the true range to be lower and smaller, as this quarter was record-setting and some regression to the mean seems reasonable.

All this to say, I feel confident (~95%) that the first half of 2021 will show growth. Using the historical track record, the hypothesis that 2021 H2 will show growth is something like 10/3 times more likely given that I’ve seen this evidence.

Before seeing this evidence, my prior odds of growth were 62.5:37.5 (56% + 6.5%). Multiplying that by the likelihood ratio of 10/3, I arrive at posterior odds of 82.5:17.5 (82.5%).

I also update up a little more on the basis of the extremely strong market, giving E a 2% credence. I update C and D proportionally, arriving at a forecast of:

• A: < $13bn (0%) • B: [$13bn, $17bn] (15.5%) • C: ($17bn, $21bn] (74%) • D: ($21bn, $25bn] (8.5%) • E: >$25bn (2%)

## If I Spent More Time

• Learn about better-suited statistical methods
• Learn why there were downturns in 2016 and 2019.
• A very brief search suggests that VC capital dried up in 2016, and the Crunchbase article suggest that VC firms have plenty of capital at the moment, but this was a really quick glance (~5 min)

period_end funding_bn
2011.5 3.41508
2012 5.216939
2012.5 4.02185
2013 3.783706
2013.5 4.991375
2014 6.166241
2014.5 8.485094
2015 9.193586
2015.5 10.15199
2016 12.00712
2016.5 9.409271
2017 9.111851
2017.5 9.79316
2018 9.81642
2018.5 12.11538
2019 14.95683
2019.5 13.40468
2020 12.62837
2020.5 15.61889
2021 17.34794
1. Indicated as the end of the reporting period. So 2011 H1 would be 2011.5 here, 2011 H2 would be 2012 here, 2012 H1 would be 2012.5 here, and so on.

2. Data from: Glasner, Joanna. “North American Startup Funding Was On Fire In Q1.” Crunchbase News, April 8, 2021. https://news.crunchbase.com/news/na-startup-funding-on-fire-in-q1/.