Whether entering a new market, realigning a supply chain, or acquiring a local competitor or new technology, all global expansion projects have one need in common: financing to make it work.
As geopolitical trends and digital transformation shape the international business environment, here are some of the trends we’re seeing related to capital sources.
Ample capital, but tightening conditions, in debt and equity
Even as the sun sets on the low interest rates of 2018, companies are still taking on debt for international expansion. In August, for example, learning platform Degreed closed on a $40 million venture debt facility from AllianceBernstein, plus $35 million in equity funding. The company plans to use this investment capital to build out client service teams in Europe and Asia and strengthen its technology solutions.
However, evolving factors like tariffs, trade wars, and continuing Brexit uncertainty threaten to raise interest rates and make both debt and equity capital harder to get. In some markets, such as Germany’s, regulatory pressure is predicted to exacerbate the situation.
“The key change in our outlook is that we now see trade and geopolitical frictions as the principal driver of the global economy and markets,” the Blackrock Investment Institute wrote on July 8. “This leads us to downgrade our growth outlook further and take a modestly more defensive investing stance.”
VC funding still on an upswing—in certain stages and markets
Last year was a record year for global VC funding: the highest number of financing events, the largest deals, and the rise of giant venture rounds and players like Softbank’s $100 billion Vision Fund. And companies were using this money for global growth strategies. As just one example, project management app creator Asana closed on $50 million in funding for international expansion.
For 2Q 2019 global venture funding, the outlook varies depending on funding stage and regional conditions. In the second quarter of 2019, the value of venture capital investments in China was down nearly 77% year-on-year, which is the type of figure that makes investors cautious. As later-stage deals declined, with the possible beginning of an overall downturn in startup funding, seed-stage deals for 2Q 2019 were significantly up from both 1Q 2019 and 2Q 2018, with the upswing driven by markets outside the U.S. and Canada.
- With these developments in mind, companies might find more receptive VC investors if they’re in the earlier stages of growth, and if they’re seeking funding in a region with a robust startup ecosystem. The 2019 Global Startup Ecosystem Report (GSER) released in May notes Barcelona, Dublin, Munich, and Lausanne-Bern-Geneva as new entrants to its “top 30” list.
New solutions like crowdfunding accelerate the process
Globally expanding companies can also think outside the box with new funding options.
When London-based fintech firm for global expansion, it didn’t get the money through a bank or a roadshow of VC presentations. It launched a campaign on crowdfunding platform Seedrs.com—and reached its goal in less than 72 hours.
MagMod, a producer of photography equipment, is another global company which has taken this route. Its first Kickstarter campaign enabled the company to introduce photographers worldwide to its grids and gels, and its second Kickstarter provided funding for its new flash diffusers.
By harnessing the power of the sharing economy, platforms like Seedrs and Kickstarter are accelerating and democratizing the funding process for international expansion. Yet crowdfunding comes with risks as well, largely related to transparency, security, and trust.
As regulatory agencies evolve their oversight of this funding mechanism, companies like Weifund and StartEngine are exploring the power of blockchain to make crowdfunding more transparent and accountable. Blockchain technology could strengthen crowdfunding by:
- Incorporating smart contracts with built-in milestones for the release of funds
- Accepting investments in bitcoin for greater traceability
- Using automation to eliminate third-party intermediaries who could siphon money
Ready to get started?
Specialist consultants and advisors can help you evaluate your financing options and set up the best structures and partnerships. For more information, contact us.