Silicon Valley’s Funding Share Shrinks

Silicon Valley may be the gold standard for technology hubs. But when it comes to securing money for startups, the region that holds that moniker – the Northern California counties of Santa Clara and San Mateo – is actually taking in a smaller share of funding than it once did.

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Of course, less is relative. A Crunchbase News tally of reported funding rounds for startups in the core Silicon Valley counties of Santa Clara and San Mateo finds that companies there have pulled in more than $15.4 billion so far this year. That’s a huge sum, and is roughly on pace with 2018 funding levels.1

As a percentage of total California funding, however, Silicon Valley is slipping.

Until about five years ago, the two-county region pretty reliably took in more than 40 percent of statewide seed through growth stage financing. In recent years, its share has regularly dwindled to less than a third of statewide totals.

Blame San Francisco

The money isn’t going far away. Silicon Valley’s declining share of funding comes as its neighbor to the North, San Francisco, continues to suck up ever-growing sums of capital.

As we reported earlier this month, San Francisco is devouring California’s venture funding to feed its vast stables of startups and money-losing unicorns. In roughly the first three quarters of 2019, companies based in the city raised around 45 percent of statewide seed through pre-IPO funding, per Crunchbase data.

The ascent of San Francisco seems to prove out the notion that startup epicenters aren’t driven by space to sprawl. San Francisco covers just 47 square miles  – compared to 2,000 square miles for the Silicon Valley counties.

Silicon Valley Is Still Drawing Near-Record Sums Of Capital

Still, it’s important to recognize that while Silicon Valley is drawing a smaller share of California’s total venture funding, in dollar terms investment is actually rising. In recent years, companies in San Mateo and Santa Clara counties have collectively hauled in roughly double the annual tallies raised at the beginning of the decade.

It’s not entirely surprising to see a rise in investment totals alongside a decline in investment share. That’s because a lot more money overall has been going to the startup and unicorn space in the past few years. That’s led to higher investment totals in most tech hubs — just some more than others.

In case anyone’s wondering, Silicon Valley companies still raise some of the biggest rounds of anyone in startup-land. This year, for instance, top funding recipients include:

• Nuro, a Mountain View-based robotics startup developing autonomous delivery vehicles, raised $940 million in a February Series B round backed by SoftBank.

• Aurora, a Palo Alto-based developer of hardware and software for a self-driving vehicle platform, raised a total of $600 million in two Series B funding announcements this year, with lead investors including Sequoia Capital and Hyundai.

• Robinhood, the zero-commission stock and crypto trading provider, raised $323 million in a Series E round led by DST Global, bringing total funding to date to more than $860 million.
• Lime, the fast-growing scooter and bike sharing service, closed on a $310 million Series D round earlier this year to build out its already enormous footprint.

So far this year, Silicon Valley companies have scored at least 42 known “supergiant” funding rounds of $100 million or more. And the Sand Hill Road corridor is still chock-full of venture capitalists with big checks to write.

So, does it matter for Silicon Valley that more startups are headquartering in nearby San Francisco (and, to some extent, the East Bay)? One could argue it doesn’t make too much difference, as these places are within commuting distances of each other.

Seeing more startups blossom just outside the Valley also isn’t obviously a bad thing for locals. Silicon Valley still lays claim to ultra-low unemployment rates, high average incomes, and a highly educated populace. The region’s downsides — scarce housing, high cost of living, and traffic — are more the result of too many tech and startup jobs rather than too few.

Moreover, the surge in overall startup funding levels means Silicon Valley is still seeing as much investment as ever. Plus, the region is already home to an outsized share of the most valuable established tech and tech-adjacent companies, including Google, Facebook, PayPal, Cisco, Tesla, and the list goes on.

So, in short, Silicon Valley doesn’t appear to be getting any less tech-centric. The region’s innovation engine, however, is increasingly reaching farther beyond its original borders.

Illustration: Li-Anne Dias.