Global Capital Flows Q3 2024

The third quarter of 2024 marked a notable shift in global capital flows, particularly for founders and early-stage companies looking to scale across regions. If you’re building a startup, especially in emerging markets 'EMs' or considering expanding to new geographies, understanding the nuances of capital movements is critical. With the Federal Reserve beginning its rate-cutting cycle, new opportunities for global capital are emerging, but they come with their own set of challenges. Lets see some numbers numbers visually:

Global Capital Flows:

Graphic of Globe showing capital flows between main markets

United States Cross-Border Flows:

European Cross-Border Flows:

APAC Cross-Border Flows:

Emerging Markets: The Start of a Comeback?

For founders in emerging markets or those eyeing expansion into regions like Asia, Latin America, or Eastern Europe, recent capital inflows offer promising signs. After a turbulent start to the year, with global markets experiencing a significant sell-off in August, EMs are once again attracting foreign investment.

Why does this matter for your company? For many startups operating in emerging markets, the cost of capital and access to foreign funding can make or break growth strategies. Our proprietary measure of non-residents’ net purchases of EM bonds and equities indicates that inflows have turned positive, driven by global investors seeking returns in markets with higher growth potential.

India has been a standout performer, with a surge in net inflows pushing its equity markets to record highs. Indonesia is also seeing increased investment, particularly in tech and infrastructure plays. If your company operates in sectors like fintech, e-commerce, or renewable energy in these markets, you may find it easier to attract interest from global investors eager to tap into high-growth opportunities.

For founders, the key takeaway is this: EMs may not be as reliant on foreign capital as they once were, but for countries with large financing needs—such as Argentina, Turkey, and Tunisia—these inflows provide a lifeline. If your startup is based in or expanding to these regions, securing foreign capital could give you an edge in navigating economic uncertainties.

The Fed’s Easing Cycle: Good News for Capital-Seeking Startups?

One of the biggest triggers for the rebound in EM inflows has been the start of the Federal Reserve’s easing cycle. The September rate cut, a hefty 50 basis points, signals the Fed’s commitment to loosening monetary policy after years of tightening. For founders looking to raise capital, this matters because it often leads to a weaker U.S. dollar and a search for higher yields abroad—historically creating favorable conditions for capital to flow into emerging markets.

Over the next 18 months, we expect the dollar to weaken further, which traditionally means more opportunities for founders in EMs. If you’re a founder with high-growth potential but operating in a market where local funding is scarce, this could be the window to attract international venture capital or private equity. However, it’s important to note that not all EMs will benefit equally, and the days of unlimited capital chasing high-risk ventures are behind us.

Startups in Argentina, Turkey, and Tunisia—where external vulnerabilities remain high—might see this as a golden opportunity to ease financing pressures. If your company’s growth strategy hinges on raising foreign capital, particularly in these markets, now is the time to sharpen your pitch.

Stabilizing Cross-Regional Flows: What Does This Mean for Founders?

For companies that already operate across multiple regions or are looking to expand internationally, the broader trend of stabilizing cross-regional capital flows offers both reassurance and insight. In H1 2024, total cross-regional capital flows between North America, Europe, and Asia-Pacific held steady at $26.7 billion. Although this was a slight 10% decline year-over-year, it’s a significant improvement from the 45% drop we saw in the second half of 2023.

If you’re considering expansion, sectors like industrial, logistics, and multifamily assets continue to see the most investment interest. Founders operating in these industries—or adjacent ones—should take note. This could be the right time to engage international investors, especially as they begin to redeploy capital into underinvested regions like Asia-Pacific. However, in sectors like office real estate, bid-ask spreads remain a barrier, particularly in cities like New Delhi. This means patience may be required as markets continue to recalibrate.

Global Liquidity and Central Bank Movements: Founders, Keep an Eye on This

Liquidity is a major driver of capital availability, and it’s rising globally—albeit with some caveats. Collateral values are increasing, and volatility is decreasing, which creates more favorable conditions for securing funding. However, the growth of central bank liquidity has been sluggish, especially in Europe and the UK. For founders, this means that while liquidity is available, the conditions to access it might vary significantly depending on where your company operates.

Interestingly, China’s central bank has been actively injecting liquidity, and we’re seeing early signs of underlying monetization by the Fed, despite what headline data suggests. Founders in sectors tied to collateral values—such as proptech, real estate tech, and finance—should be attuned to these movements, as they can directly influence funding opportunities.

What Does This Mean for My Company?

For startups and early-stage companies, the third quarter of 2024 brings cautious optimism. If you’re raising capital or expanding into new regions, the stabilization of global capital flows and the Fed’s easing cycle present an opportunity to attract international investors. Here’s what founders should focus on:

Emerging Markets are Rebounding: If you’re operating in, expanding to, or raising capital from markets like India or Indonesia, this could be the time to seek out global capital. These markets are experiencing strong inflows, and investors are looking for high-growth opportunities.
Leverage Cross-Regional Flows: With capital stabilizing across North America, Europe, and Asia-Pacific, founders should position their businesses to attract cross-border investment. Industrial, logistics, and multifamily sectors are particularly hot right now.
Monitor Central Bank Policies: Liquidity is rising, but the growth isn’t uniform across regions. Founders need to stay aware of local and international central bank policies, as they can impact the ease of raising capital.
Capitalize on Dollar Weakness: As the Fed continues to ease, a weaker dollar could open the door for more investment in emerging markets. If you’re a founder in an EM country, now might be the time to present your business as a viable destination for foreign capital.

At Velocity VC, we help founders bridge these capital gaps, leveraging our deep relationships across Europe, MENA, North America, and Asia. Whether you’re a first-time founder or a seasoned entrepreneur looking to scale globally, our insights and networks can help you navigate the complexities of raising capital, accessing markets and position your company for success.

As always, Capital Bridge will continue to provide founders with actionable insights and real-world examples of how businesses are tapping into global capital markets to scale. Stay tuned for interviews with successful founders and investors to see how they’re navigating these turbulent waters and positioning their companies for long-term growth.

Matt,

Managing Director

Velocity VC