Better Than 2021? Venture Funding Thrived Like Never Before In These 3 States

Last year couldn’t surpass the banner year that venture capital had in 2021 – at least in most geographies.

While the holy trinity of venture capital funding – California, New York and Massachusetts — saw massive declines (we’ll get to that tomorrow), some states actually made significant gains last year, according to data from Crunchbase.

“It doesn’t surprise me,” said Steve casefounder of a venture capital firm based in Washington, D.C. Revolutionwhich focuses on investing outside of the major hubs of Silicon Valley, New York and Boston.

“A lot of these areas laid the groundwork years ago and are seeing the fruits of it,” he said.

While the Big Three saw steep declines in venture capital investments between 2021 and 2022 – although still more than they saw in 2020 – states such as Florida and North Carolina saw declines. substantial gains. The number of venture capital funds in Texas remained at 2021 levels for the state after seeing a significant increase in 2021 – still impressive since most regions saw declines last year.

Case said while there has been steady progress in diversifying the geographic dispersion of venture capital, the COVID pandemic and the movement of talent has likely accelerated this trend.

Along with this, new government initiatives around sectors such as semiconductors and infrastructure and certain areas with an advantage in specific sectors where technology has moved – such as healthcare and food technology – also helped to level the playing field.

The state of the sun

No state has been able to profit from these trends more than Florida. The Sunshine State saw the largest percentage increase of any state in venture capital investments between 2021 and last year.

In 2021, investors spent $7.8 billion on Florida-based startups across 652 deals, according to Crunchbase. Last year, that revenue jumped 25% to $9.7 billion in 601 transactions. In 2020, Florida startups took in just $3.4 billion in 470 deals.

“Even we, as Florida’s greatest cheerleaders, couldn’t imagine what happened,” said saxon baumpartner at Donors in Floridaan investment firm that focuses on Florida and the Southeast and has 96 portfolio companies.

Florida has seen several major funding rounds in the past year in the likes of Fanatics, Citadel Securities and Yuga Laboratories. Industries such as crypto, space, gaming, and cyber security have started to flourish in the state.

While Florida’s startup scene has been bolstered by the absence of state income taxes and a slew of successful exits, including KnowBe4, ConnectWise and Reef in recent years, the state is also likely to have received the biggest boost from COVID migration.

During the pandemic, Florida has remained much more open than parts of California and New York.

“People moved here, money moved here,” Baum said, pointing out that the state has the third-highest number of accredited investors behind California and New York.

Baum also points out that many see Florida as a natural entry point to the growing Latin American market, which also makes it an attractive location.

As the business grew, Baum added that he had already seen big names enter the market over the past few years. “We see Sequoia, Andreessen, Soft Bank, etc. “, did he declare. “We never really saw those names until recently.”

Although these companies have to some extent added to the competition on transactions, it has also provided more opportunities to work together.

“Yes, it’s additional competition, but they also want and need to collaborate,” he added.

The state of the tar heel

Although Florida saw the biggest gains in venture capital in 2022 — a year of getting back to reality for the industry — it wasn’t the only state to see a significant uptick.

Just up the road, North Carolina also had a rough year for most regions. The Tar Heel State has seen an increase of nearly $1 billion in venture capital for startups within its borders.

The numbers were helped enormously by epic games‘ a massive investment of 2 billion dollars sony and KIRKBI who valued the $31.5 billion gaming company.

Lister DelgadoFounder and Managing Partner at IDEA Fund Partners in Raleigh, said he’s noticed real growth in the tech and startup ecosystem in the state — and it’s not just due to the effects of COVID.

“There has clearly been a change,” Delgado said. “People have moved here and you can just watch the deal flow.”

Unlike some regions that are seeing a relatively young tech scene thrive, Delgado points out that North Carolina has been sustainably building its startup scene for decades, from research and biotech out of the Research Triangle to hits from Epic Games and from the open source software giant. Red Hat.

North Carolina’s numbers are definitely moving in a positive direction. Startups in the state received approximately $3.5 billion in venture capital through 241 deals in 2020. Those numbers grew to $4 billion through 285 deals in 2021.

However, the state saw an even bigger jump — 24% — last year, while most other regions saw declines. North Carolina startups, meanwhile, received $4.9 billion in 234 deals.

Delgado said he’s already seeing more out-of-state money coming into the state — and just like Florida, he’s seeing bigger names, including world tiger, Bessemer Venture Partners and Battery companies be more active.

Tiger, for example, participated in a Raleigh-based analytics firm Pendo$150 million Series F in 2021.

Enterprise software, deep tech, AI and fintech all offer substantial growth areas for North Carolina, Delgado said.

“It’s very diverse,” Delgado added. “Just the diversity of goals [of startups] It’s incredible.”

The Lone Star State

Sometimes, in a year that doesn’t live up to its predecessor, it’s not just the areas that make gains that matter. It is also important to note which ones remained stable and did not return the previous massive jumps.

Texas fits this bill exactly. Venture capital funding for startups in the Lone Star State jumped 105% between 2020 and 2021 — from $5 billion to $10.3 billion — according to data from Crunchbase. Last year, startups in Texas saw much the same — in fact, a slight increase of 1% — which is particularly remarkable since Texas’ venture economy only trails that of the big three states.

“It’s been an interesting year here,” said morgan flagerManaging Partner at Austin Silverton Partners, which manages more than $500 million. “It was kind of a two-half year. The first half was definitely a carryover from 2021.

“The second half softened,” he added.

Unsurprisingly, the two biggest towers – Securonix raise $1 billion and Elon Muskit is The boring company landing $675 million – both happened in the first half of last year.

While Texas has hosted its share of big tech companies in recent years, including Hewlett Packard Enterprise and OracleFlager said the tech ecosystem may still continue to grow in the state — though perhaps not at the same rate that places like Austin have grown in recent years thanks in part to COVID and other changes. cultural.

Healthcare IT, fintech, and enterprise software are all driving upward growth, along with a strong influx of talent over the years.

“I don’t think we’re going to back down,” he said. “There are too many tailwinds. But it will be interesting to see what happens to the pacing.

“A place like Austin cannot continue to have a population increase like what happened in 2021,” Flager added. “But it will still grow.”

Illustration: Dom Guzman