Thursday, November 30, 2023

Is Silicon Valley Dead? Not according to Venture Dollars

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The most of Silicon Valley a valuable asset is no longer silicon, to manufacture computer chips, or even technological talents, to code software products. Instead, it’s capital, which has been building up in the region since the founders of today’s start-up were in diapers. The neighboring city of San Francisco is now home to more billionaires per capita than in any other city in the world – and many have reinvested their wealth in the startup ecosystem. In other words: Silicon Valley is the tech capital because of the tech capital.

Recently, some investors have talked a lot about the possibility of bringing their money elsewhere. Peter Thiel announced in February that he was moving his Founders Fund to Miami; Joe Lonsdale took his venture capital firm, 8VC, to Austin. The Bay Area is dead, they say. If money speaks, however, it suggests otherwise.

Venture capital had a record year in 2020, and the lion’s share of investments remained in California. This pattern continues this year: of the $ 69 billion that U.S. venture capital funds invested in startups in the first quarter of 2021, more than $ 25 billion – more than a third – landed in Silicon Valley and the Bay Area, according to the latest Pitchbook Data. This is more than the next three cities – New York, Boston, and Los Angeles – combined, and more than 30 times the investment in cities like Austin.

These new numbers tell an old story about venture capital. “In our data set, it was never concentrated in the Bay Area,” says Kyle Stanford, an analyst at Pitchbook. This winter, as rumors of technorati fleeing California politics and the high cost of living came to a head, Stanford sought to qualify claims that Silicon Valley was in decline. He found that between 2015 and 2020, 40% of venture capital dollars went to companies based in the Bay Area. And while other cities have seen more dollars pouring in recently, it hasn’t done much to topple Silicon Valley as regional king yet.

So far, in 2021, California startups continue to raise the biggest investments. Of the 25 largest startup deals in Pitchbook’s Q1 data set, 12 were completed in the state. Of the 10 largest deals, half were based in California. And the size of these transactions is becoming increasingly important. In the first few months of 2021, there were three times as many “mega-towers,” or towers over $ 100 million, than in the same quarter last year. While a few of these companies have brought wealth into new areas – like the $ 2.65 billion F Series raised by Plymouth, Michigan-based automaker Rivian – most of the bigger rounds have been for companies based in California. Start-up of real estate technology Pacaso and enterprise software maker Databricks, both based in San Francisco, each raised more than $ 1 billion in funding in the first quarter of the year. Robinhood, headquartered in Menlo Park, has raised an impressive $ 3.4 billion.

The big releases are also concentrated in California. In the first quarter of 2021, the top three releases – Roblox, Tuya Smart, and Affirm – were all based in Silicon Valley or San Francisco, grossing over $ 63 billion between them. In the past three years, only 20 companies have completed a $ 1 billion exit outside of the four largest startup ecosystems.

Silicon Valley does not have complete control. Smaller rounds of venture capital funding are moving to new cities at a higher rate. In the first quarter of 2021, investors funded some 1,500 angel and seed rounds – the highest quarterly total Pitchbook has recorded since monitoring began in 2006. The Bay Area received 14.5% of these tours, which still makes it the regional leader, albeit by a smaller margin than other types of investments. Some cities, like Minneapolis, saw more initial fundings in the past quarter than ever before. Denver and Chicago both showed huge year-over-year growth in total investment numbers, indicating growing interest in these startup ecosystems.


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