Capital Markets Add Impetus to Tech Industry’s Growth
COVID-19 has elevated the importance of technology usage and added impetus to its future growth prospects. Changed consumer behavior and business trends toward digital enablement caused the tech industry to respond to new market conditions for its products and services. Large-cap tech companies and those that support critical cyber infrastructure and digital activities at home have experienced business and workforce growth.
Venture capitalists and stock investors rewarded companies that benefitted from new and accelerated business trends caused by COVID-19, including e-commerce, communications, social media, entertainment, digital health, life sciences, data analytics and cybersecurity. COVID-19 also accelerated trends that likely will benefit certain tech companies impacted by temporary economic and health restrictions, including the transportation and leisure sectors.
U.S. venture capital funding reached another all-time high of $166 billion in 2020, about $10 billion more than the previous high in 2019, according to data from CB Insights. More than half of the funding was for mega deals of $100 million or more. There were 336 mega deals in 2020 vs. 273 in 2019. Once again, the San Francisco Bay Area received the largest share of funding with $54.8 billion or 34% of 2020’s total and slightly more than the $53.1 billion in 2019. New York received the second-highest funding amount at $22.1 billion. Boston, Washington, D.C., San Diego, Chicago and Los Angeles had the highest year-over-year funding growth.
Financial support to the tech industry helped make it one of the economy’s most resilient sectors in 2020. Only 23,800 tech industry jobs or 0.5% of its total employment were lost in 2020, compared with a loss of 9.9 million or 6.5% for total U.S. jobs. Tech sectors with the strongest job growth were e-commerce, internet and software. Tech manufacturing and tech business services job levels remain below February’s peak.
Increased venture capital funding is on top of a spectacular year for IPOs and other exits via mergers & acquisitions and special-purpose acquisition companies. Together, these have provided an enormous amount of capital that will fuel many tech companies’ future growth. Tech jobs are closely linked to venture capital funding and stock market valuations, with these financial indicators usually leading hiring by about one year.
These trends have set up the tech industry for significant business and headcount growth, which should translate into real estate demand that could start as soon as the second half of 2021 and last for many years thereafter.