Is Silicon Valley Losing Its Lead? The Status of VC Funding

Is Silicon Valley Losing its Lead?

The fact that California, and especially the Bay Area, leads the U.S. in Venture Capital (VC) funding in all rounds isn’t new news.

But is this changing? Tomasz Tunguz recently asked the question “Is Geographic Dispersion of Seed Dollars Really Happening?” and he determined that, as far as Seed funding is concerned, not much is changing.  We wanted to take it a little bit further and determine if all early VC funding rounds (Seed, Series A, and Series B) were also staying mostly in California or if other areas in the U.S. were starting to pull some of that funding away from the Golden State.

What Metrics Indicate Growth?

We took 6 years of VC funding data (from 2012 to 2017) from Crunchbase to find some indications that either the Bay Area is losing ground, or that other States and areas are gaining.  We used investment amounts that were part of early VC funding rounds (Seed, Series A, and Series B). After looking at a number of indicators like Annual Funding Growth, Running Total of Funding, and 5-year and 2-year Compound Annual Growth Rates, we determined that Market Share of Total Funding Dollars was the most normalized indicator and growth can be measured on that. We decided to use that metric for our analysis.

How do the States’ Market Share Rankings stack up?

When we ranked the States by their Market Share, there are no surprises at the top of the list. California, New York, and Massachusetts are the top States and their positions are unchanged from 6 years ago to the end of last year.

Washington, Texas, Illinois, Colorado, and Pennsylvania were in the top 10 in 2012 and remain in the top 10 in 2017.  Those States had their position change marginally in the past 6 years. New additions to the top 10 that experienced large jumps were Florida and Virginia jumping 9 and 7 spots respectively to leap their way into the top 10.

Which States Increased their Rankings the Most?

Twenty three States increased their Market Share and the increases in all but one of those States were between 0 and 1%. New York was the only State that increased its Market Share by more than 1%, in fact it increased over 3.4%.

The next closest increase was Florida which put together an increase of 0.77%. Virginia came in 3rd place, and that is especially interesting for us here at Chartio, because we recently opened our second office in Blacksburg, Va.

Conversely, the 10 States that have experienced the largest decrease in Market Share over the same time period have a few interesting entries.  

California is significantly decreasing its market share.  In fact, it has seen the 6th largest State Market Share decrease.

What States saw the Largest Jumps in Rankings?

While Florida and Virginia were massive jumps, they weren’t the biggest.  That honor belongs to the great State of Minnesota. Minnesota jumped 13 places from 28th to 15th place, lead by Minneapolis, Plymouth, Minnetonka, and Rochester in 2017.  Florida was lead by Clearwater, Miami, Aventura, and Cape Canaveral. Virginia was lead by Charlottesville, Herndon, Arlington, and McLean.

Other big jumpers:

• North Carolina which finds itself just outside of the top 10 coming in at 11th place with a 7 spot jump.

• Wisconsin jumped 7 spots.

• Delaware, Kentucky, and Louisiana each jumped 6 places.

• Nevada rounds out the top 10 jumpers, leaping 5 places between 2012 and 2017.

What is Going on in California?

Not surprisingly at all California is the top ranked State in early VC funding, and has been for a while.  California is home to the fabled Silicon Valley, the epicenter of the startup world since the 1980s. But, California is a large State, and Silicon Valley is just a part of it.  

Identifying how all of California is performing can’t be based on Silicon Valley alone.  Southern California is home to the second largest city in the US, while the Bay Area’s largest city, San Jose sometimes referred to as the “Capital of Silicon Valley”, barely squeezes into the top 10 largest US cities.

So how does the early VC funding Market Share break down in California?

From 2012 to 2017, the Bay Area’s Market Share as a percent of the total California Market Share shrank from 84.2% to 82.3% while Southern California’s increased from 13% to 15.5%. Other areas in California also saw a Market Share decrease and those combined with Southern California still come in second place to Silicon Valley.

California is still dominated by the Bay Area.  But the numbers suggest the Bay Area is losing some ground.  Again, as with California’s comparison to the rest of the country, the Bay Area’s lead is so large that a 2% loss still gives it a lead of almost 66.8 percentage points in the Market Share over Southern California.

In Conclusion

Broadly speaking, VC funding is expanding in the United States.  When comparing the usual leaders of this market to the rest of the country, Market Shares of other States are climbing, and some are climbing fast. California’s Market Share is shrinking, as is Silicon Valley’s, but not dramatically. California still maintains a dominant lead with over 54% of all of the early VC funding in the U.S. It appears as though California is losing its lead, but for right now the attrition is marginal in relation to the actual size of the lead. That being said, it doesn’t look like Silicon Mountain, Silicon Plains, Silicon Desert, or Silicon Beach will be taking over for the famed Valley anytime soon.