Report: There’s growing shift in venture capital – Triangle startups are benefiting

RALEIGH – A new report from Revolution and PitchBook finds that funding for startups has shifted from Silicon Valley, New York, and Boston to startups that are based in smaller metropolitan areas, including the Triangle, over the past decade.

And, the report states, should the trend continue, it could make America more economically competitive.

“The more that capital gets off the sidelines, the better for entrepreneurs everywhere—and the better for America’s future economic competitiveness: more investment, more startups, more jobs,” the “Beyond Silicon Valley” report reads.  “Startups are responsible for nearly all net new job creation in the US, making greater startup investment outside of the Bay Area a driving force in creating a more equitable distribution of economic growth and opportunity.”

The increase is occurring for two primary reasons, the report states.  There’s been about a threefold increase in active investors who are, themselves, geographically based outside of the Silicon Valley, New York, or Boston markets, since 2011, and now more than 3,000 investors are operating from outside those three markets.

Those investors tend to invest in firms located in the geography in which they are based, or in the region, the report found.

Southeast, North Carolina, see growing activity in venture capital, 2019-2021

Take the Triangle, for example.

“Raleigh’s VC market is visibly bigger today than it was a decade ago,” the report reads.  According to the report, which analyzed PitchBook data through Sept. 1, 2021, Raleigh has seen 64 seed- and early-stage financings worth a combined $597.9 million year-to-date in 2021.

In contrast, in all of 2011, only 33 such rounds were completed, for a combined $134.1 million.

Image: Revolution “Beyond Silicon Valley” report. Caption: Raleigh-Durham seed- and early-stage VC deal activity, 2011-2021. PitchBook data.

“While the Raleigh-Durham area doesn’t have hundreds of these deals taking place every year, it’s on an upward trajectory, with 2021 already breaking volume and value records,” the report reads.

“Entrepreneurs elsewhere have noticed,” said Tim Scales, director of growth for the American Underground, who is quoted in the report.  “A common theme to their relocating here is that their runways are three times as long, thanks to lower costs of living and an accessible housing market.”

“The area has several legacy corporations, including IBM, Cisco, GlaxoSmithKline, and Fidelity, but new entrants such as Google Cloud are validating the Triangle’s status as a tech hub,” said Scales in the report.  “We think this bodes well for the next decade, and we expect explosive growth as a result.”

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Additionally, those investors who are based in those three markets of New York, Boston, and Silicon Valley are now seeking investment opportunities across the country at a rate higher than a decade ago, and this rate may have been accelerated during the coronavirus pandemic.

The report found that Raleigh-Durham attracted the 13th most capital ($1 billion) from Bay Area investors of any of the “rising cities” that the report analyzed, and also attracted the 13th most capital from New York-based investors ($827 million) in the prior decade.

For example, the share of capital going to Bay Area startups is set to drop below 30% for the first time in a decade, the report finds.  Additionally, a statement from Revolution issued in releasing the report notes that “2021 will be a record year for capital raised by VCs outside the three major tech hubs, with a 700% increase, to $21 billion, over the past ten years.”

All facets of U.S. venture capital industry are ‘astounding,’ report finds

Editor’s Note: The American Underground is owned by Capitol Broadcasting Company, which also owns WRAL TechWire.