Silicon Valley VCs are funding more startups outside the Bay Area

Jessica Wong

The Bay Area continues to be the global hub of venture capital despite some high-profile people leaving. But Silicon Valley VCs are increasingly investing outside the area, a Pitchbook report finds. After the pandemic, the tech industry will still “center” on Silicon Valley, says the report. Visit the Business section […]

  • The Bay Area continues to be the global hub of venture capital despite some high-profile people leaving.
  • But Silicon Valley VCs are increasingly investing outside the area, a Pitchbook report finds.
  • After the pandemic, the tech industry will still “center” on Silicon Valley, says the report.
  • Visit the Business section of Insider for more stories.

Contrary to the talk about tech people and companies moving from San Francisco, Silicon Valley is still the global hub for venture capital, according to a new report published by deals research firm, PitchBook. And many Bay Area venture capitalists agree.

In the year since the pandemic made work-from-home the norm, some big-name VCs have vocally fled San Francisco, such as Founders Fund general partner Keith Rabois. And several Bay Area tech giants relocated their global headquarters outside of California, including Oracle and Hewlett Packard to Austin and Palantir to Denver.

But Pitchbook found that Bay Area venture firms have not only retained, but grown their global dominance. VCs that are headquartered in the area have averaged $34 billion in capital over the past three years. 

“Many deals outside of Silicon Valley include participation by Bay Area investors, especially as companies move through the venture life cycle and require larger funds to provide capital,” writes Pitchbook’s VC Analyst, Kyle Stanford.

Interestingly, while Silicon Valley venture funds remain powerful, they are actually funding more startups from elsewhere.

Participation by Bay Area venture investors outside of Silicon Valley more than doubled in the last decade, according to the report. And Pitchbook’s 2021 Venture Capital Outlook predicts that deal activity for Bay Area startups could actually fall under 20% of total US deals by year’s end, the historically typical rate.

But that’s not because fewer Silicon Valley startups are getting funding, or that they are getting less money. In fact, the report finds that slightly more of them are and that they are landing bigger sums.

At least 2,500 deals for Bay Area startups were completed in 2020, an increase from 2019. And, for instance, 20% of pre-seed and seed deals in the US were sent to Bay Area startups in 2020, also a slight increase than the previous year. 

There’s simply more money in venture and it is being spread more widely, the report finds.

So where does that leave the Bay Area? Exactly where it’s always been, as the capital of the tech industry.

As several prominent investors told Insider in December, they think talk of the exodus from the Bay Area was overblown. This includes Ravi Mhatre, a founding partner of Lightspeed Venture Partners, who said no other region has the same tranche of talent, “technical creativity,” or “depth of experience” to rival Silicon Valley as the global capital for entrepreneurs.

“It means for some long period of time, Silicon Valley will continue to be a center of the kind of highly creative technology-activity that can lead to these sort of unanticipated outlier-types of companies and ideas,” he said.

And, even with a growing tech industry diaspora, many prominent Bay Area companies, especially unicorn startups, aren’t going anywhere. Out of 22 companies privately valued at $10 billion or more, 17 of them are still based in the Bay Area, the report finds. The other 5 are located in Los Angeles, New York and North Carolina.

“As the world gradually returns to normal with the end of the pandemic in sight, the VC market could fall back into previous patterns,” writes Pitchbook’s VC Analyst, Kyle Stanford, “and those patterns center on Silicon Valley.”

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