Funding for Venture fell by More Than 40% in the Hottest States
California is the Golden State
Last year, venture funding to California, Massachusetts, and New York fell sharply from 2021's lofty levels.
According to Crunchbase numbers, venture funding to startups based within the borders of these three states dropped by more than 40% in 2022.
While the declines are striking, last year was still an increase over 2020.
Also, despite the drops, the three states still outpace other states in venture. Massachusetts startups received nearly twice as much venture funding as Texas startups - the fourth-largest state for venture funding. Last year, Texas, North Carolina and Florida all saw significant increases in venture capital funding.
"Those three will remain the leaders, and that's not going to change," said Steve Case, founder of Washington, D.C.-based Revolution, which invests outside Silicon Valley, New York and Boston.
California is the Golden State
Considering California is by far the largest venture economy in the country, it shouldn't be surprising that the state had the biggest dip in dollars.
The state's venture funding fell by 42% in 2022, from $157.4 billion in 6,419 deals to $91.9 billion in 4,296 deals, a 33% drop in volume and the lowest deal count since 2017.
California-based startups raised $76.4 billion in 5,418 deals in 2020, a 20% increase over that year.
California, with its mature startup ecosystem and high valuations, was undoubtedly hurt by the decline in large growth rounds the venture world experienced.
Despite companies like SpaceX, Anduril Industries, and Cruise seeing billion-dollar-plus rounds last year, the state saw only 13 half-billion-dollar rounds in 2022, compared to 33 in 2021.
State of the Empire
While California's venture decline was notable, New York's was the largest percent decline by a state.
In New York, venture funding dropped from $52.3 billion in 2,726 deals to $26.5 billion in 1,902 deals. That's a nearly 50% decline in dollars and a 30% decline in deals.
This is the state's lowest deal count since 2017.
The venture investment numbers for New York in 2022 were higher than those for California in 2020, which saw $23.3 billion invested in 2,181 rounds announced.
Like California, New York saw a decline in large rounds. In 2022, 59 New York startups raised $100 million or more, down from 84 in 2021.
There was also likely a drop in fintech funding that affected the state's numbers. California's downturn can't be pinned on just one sector — it has so many startups in so many different fields — but New York's most dominant sector is fintech, which faced a tough funding road in 2022.
In fact, the largest round raised by a startup in the state went to a fintech startup. Brooklyn-based Web3 and fintech startup ConsenSys closed a $450 million round. The company develops decentralized protocols software to assist developers in building blockchain-based financial systems.
Among the other New York-based startups that raised large rounds of more than a quarter-billion dollars last year are smart city firm Sidewalk Infrastructure and e-commerce provider Wonder.
Known as the Bay State
Massachusetts ranks third in the VC trinity for the largest drop in funding after New York.
In 2021, the Bay State saw $35.7 billion in 1,119 deals. In 2018, those numbers fell to $19.5 billion in 810 deals.
Similar to New York, the deal count dropped by 28% from 2021, and it was the lowest number since 2017.
As a result of the fact that there were 97 large, $100 million-plus rounds in 2021, but only 62 last year, the state's numbers were hurt.
The three largest rounds in Massachusetts last year went to a variety of industries in addition to biotech:
A $355 million Series C round was raised by digital manufacturing startup VulcanForms.
Form Energy raised $450 million in Series E funding.
A $400 million round was raised by USDC issuer Circle Internet Financial as it waited to go public via a SPAC, which was officially canceled last month.
At different times
In all three states, there is a mature startup ecosystem accustomed to huge mega rounds, so the numbers are not surprising.
Despite Case's view that none of the trinity can be dislodged from the top three spots when it comes to venture capital, the pandemic has changed some aspects of fundraising.
In addition, people who moved to other areas of the country during the pandemic are more likely to start their own businesses there one day, as well as those who may have suffered one of the many massive layoffs that shook the tech industry.
In addition, the pandemic allowed investors to explore more of the country, something they are unlikely to abandon.
He said that before the pandemic, it was inconceivable for some investors to back a company outside of Silicon Valley. "But once they started, they realized the opportunities.