As US Early-Stage Funding Soared, These States Outperformed

U.S. early-stage funding has more than doubled year over year in the past two quarters. But not all tech hubs are sharing equally in the gains.

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At least 11 states have seen early-stage funding more than triple, according to a Crunchbase analysis of U.S. states with $100 million or more in Series A and B investment. Top gainers by percentage, deal count and total investment include New York, Florida, Ohio and Michigan.

Meanwhile, a number of states with sizable tech hubs are seeing smaller investment gains, well below the national average. This includes Texas, Washington and Illinois.

To put it in perspective, below we ranked 26 states with the highest early-stage investment totals, along with the U.S. as a whole.

At first glance, it’s obvious this is a pretty upbeat set of stats. Every state on the list but New Jersey has seen at least a double-digit percentage gain in early-stage investment.

It’s also clear that narratives of the San Francisco Bay Area’s entrepreneurial decline are premature. Early-stage venture funding in California hewed fairly close to the national average. The nation’s third-largest venture hub, Massachusetts, was also only a bit below the U.S. average.

Still, other tech ecosystems are seeing faster growth, and in particular the distribution of really large early-stage rounds appears to be happening across a wider swath of geographies.

Investment gains far outpace deal count growth

The size of the typical early-stage round has also been on the rise. In Q2 and Q3 of 2021, the average early-stage round was around $28 million, up from $18 million a year earlier.

As a result, we’re seeing far larger increases in early-stage investment than deal count this year. However, more rounds are also getting done in most states, as illustrated in the chart below:

Looking at both investment totals and deal count, a few trends stand out:

Supergiant rounds fueled most gains in many states: In many of the states surveyed, a single supergiant round or two accounted for most or all of the gains in investment totals. In Vermont, for instance, virtually all funding came from a single $366 million round for electric aircraft upstart Beta Technologies. Other big rounds that moved their state’s totals include:

  • Kentucky’s Climavision raised a $100 million Series A;
  • Tennessee’s Monogram Health raised a $160 million Series B;
  • Missouri’s Wugen landed $172 million in Series B funding; and
  • Rhode Island’s Lilac Solutions raised a $150 million Series B.

Texas is up, but underperforms: Sometimes data does not match the overall narrative we hear about a locale, and this seems to be the case with Texas. The second-largest state by population, Texas has garnered a lot of ink around attracting big tech names, with Tesla and Oracle both moving their headquarters to Austin, and Apple scaling up there. But while big tech is all over Austin, early-stage growth is below average. Overall investment was up 66 percent year over year in our analysis—a big increase, but still less than half the U.S. average.

New York on the rise: New York’s startup scene saw gains earlier this year, and momentum continues. The 200 percent year-over-year increase in early-stage funding is well above the national average. It’s particularly remarkable for such a large, established startup hub, which requires more than a couple big deals to really impact percentage gains. It helps that New York City has one of the more diversified startup scenes, spanning fintech, digital media, consumer, real estate, enterprise software, health and, increasingly, biotech.

Midwest bellwethers: Some of the largest gainers in our survey were Midwestern states, with  Michigan and Ohio in particular posting sharp gains in early-stage funding. Both states have the criteria one generally associates with successful startup hubs—large metro areas, major research universities, and a lot of STEM talent—so it’s not surprising to see early-stage investors finding deals. However, these are unusually sharp investment gains paired with rising deal count.

Mountain highs led by Utah, Colorado: Utah and Colorado aren’t exactly up-and-coming startup hubs, as both have a history of launching high-valuation technology companies. However, data shows early stage activity is accelerating further in these two Mountain Time Zone states, with investment more than tripling year over year.

Illustration: Li-Anne Dias

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