Tech Start-up Fundings Crash 40% since April

TechCrunch is the leading website to follow technology start-up fundings. As a tool to identify funding trends, Todd Schneider updates a weekly chart called the “TechCrunch Bubble Index” (TCBI) to track the trend in new fundings. High-tech companies have been a huge beneficiary of globalized trade. But as that trend seems to have peaked since April, the number of tech start-up fundings has crashed by 40%.

Tech start-up fundings have grown dramatically since 2006 as Internet globalism became the dominant investment theme. Even during the depths of the financial crisis, from the March 2008 Federal Reserve rescue of Bear Stearns through the October 2009 launch of the Federal Reserve’s second tranche of quantitative easing, new tech start-up funding held steady at about 50 per week.

Once the crisis stabilized, the number of weekly tech start-up fundings grew by 700% over the next four and a half years before peaking-out in the week of April 22, 2014 at 345 fundings. Investors over a ninety-day-period in the spring of 2014 pumped more than $5 billion into startups, according to TechCrunch.

The peak in new tech fundings seemed to have been correlated with increasing confidence in expanding global economic growth through the spring of 2014. The International Monetary Fund (IMF), in their quarterly World Economic Outlook, published in April, 2014 claimed that international “Recovery Strengthens.”

But a week after the optimistic projections, the United States and their NATO allies announced sanctions against Russia as retaliation for its confrontation with Ukraine. Since that time, the recovery has imploded, as the 28 members of the European Union (EU) seem headed toward deflation. Despite the European Central Bank cranking up its money supply in a desperate effort to prevent a major economic contraction, Goldman Sachs predicts the EU is about to enter a triple-dip-recession.

The number of weekly tech start-up fundings reported by TechCrunch shriveled each week to a low of 206 during the week of October 22. Weekly fundings have remained depressed at about 210 for the last three weeks. But the amount of money invested over the last ninety-day-period in tech start-ups has crashed by 40% to $3 billion.

The European slowdown is crushing Asia. This week, Japan acknowledged they are now in recession and China suffered its largest corporate bankruptcy in history last week as Haixin Iron & Steel Group, with $1.7 billion in debt, shut down and may never reopen. In a sign that Asia is already in a credit crunch, Chinese banking authorities injecting $126 billion of liquidity into their banks during September, 2014, according to the South China Morning Post. But instead of pumping-up new loans, Chinese lending crashed in October by -36%, falling from $140 billion in September to $90 billion.

The IMF’s December issue of Finance & Development Magazine, titled “Slow Trade“, argues that the interconnections of global supply chains since the 1990s that were the engine of rapid world growth in trade “appears to have exhausted its propulsive energy.

The IMF and World Bank warn that, for the first time in over four decades, the globalization trend may be over. With high tech start-ups having been the prime beneficiary from globalization, money for future high-tech start-ups may dry up quickly.

Chriss Street suggests that if you are interested in the U.S. economy, please click on America’s NATO Allies will Force Keystone XL Approval Next Year.