These South Bay And Peninsula Cities Are Raking In Venture Capital

Though the region known as Silicon Valley covers dozens of municipalities, a few cities get outsized attention in tech circles. Everyone knows Palo Alto, Mountain View, San Jose, and San Francisco as hotbeds for startup innovation.

But they’re not the only ones.

Less talked-about cities in the region are also raking in funding, beating out major cities in other states for total venture investment.

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A few days ago, we looked at cities in the East Bay of the San Francisco Bay area with a high concentration of funded startups. Today, we turn our attention the Peninsula and South Bay regions, looking for who’s attracting well-funded startups.  Here are some of the cities that topped our list:

South San Francisco

This city of 60,000 is well known as the last place you drive through when going from San Francisco to the airport. Coming back, it’s also hard to miss the famous South San Francisco hillside sign that reads “South San Francisco, The Industrial City.” The motto is outdated, though, since South San Francisco, a city founded by the meatpacking industry in the 1880s, has since transformed into a biotech powerhouse.

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The transformation began in 1976, when Genentech opened there, and it has been on a roll ever since. More than forty South San Francisco biotech and healthcare companies have raised funding in the past five years, and at least twelve brought in $40 million or more in their last rounds.

The biggest funding recipient, cancer therapy developer Stemcentrx, also delivered one of the largest biotech exits ever last year when pharma giant AbbVie agreed to buy it for $5.8 billion up front and up to $4 billion in milestone payments. Other heavily funded biotechs include NGM Biopharmaceuticals, a developer of drugs to treat cardio-metabolic and liver diseases, and Freenome, a developer of non-invasive cancer screening tools.

In total, South San Francisco companies have raised more than $1.1 billion in venture funding over the past three years. That’s more than the entire state of Connecticut and about eight times as much as Rhode Island.

Sunnyvale

While Sunnyvale is known as the home of Yahoo, its real estate market is sometimes viewed as more dependent on nearby Apple than the former Internet darling. “Million dollar homes with fewer rooms than your first apartment” could be the motto of this quiet burb.

But aside from high housing costs, Sunnyvale boasts a sophisticated startup ecosystem that pulled in more than $1.4 billion over the past three years. That means this city of 140,000 has raised more than the entire state of Arizona and over double the VC funding for the state of Oregon over the same period.

Sunnyvale’s startup scene isn’t dominated by any one sector. There are heavily funded companies in security, hardware, biotech, and even autonomous vehicles. Illumio, a cybersecurity provider, raised the most capital of any local startup over the past three years, followed by Quanergy, a developer of LiDAR sensors and software for 3D mapping.

The city has plenty of startups that have grown into multi-billion-dollar companies too. A few of those sold to acquirers in recent years, including security provider Blue Coat Systems, which Symantec bought last year for $4.65 billion, and network infrastructure provider Aruba Networks, which sold to HP two years ago for $3 billion.

And, of course, there’s Yahoo.

Milpitas

Milpitas fought a battle for independence 56 years ago, and it won. It faced annexation by a land-hungry neighbor, the city of San Jose, and a group known as the “Milpitas Minutemen” came together to fight for the town’s independence.

Since then, Milpitas has evolved in a sprawling, tech-infused town dotted with office parks and newish housing developments. It’s likely thanks to the Minutemen that Milpitas, and not San Jose, can now claim itself headquarters of SanDisk and LSI Logic, two companies swallowed up in some of the biggest semiconductor acquisitions of recent years. Thanks to them, Milpitas can also call itself home to startups that have raised more than $650 million over the past three years.

A city of nearly 80,000, Milpitas drew more VC funding over that period than Indianapolis (pop. 850,000). A single company, View, is responsible for over half of the total funding haul, having raised $400 million in the past two years to commercialize a line of dynamic glass that automatically changes tint. Next biggest is Beamreach (formerly Solexel), a developer of solar panels that raised more than $200 million in venture funding before filing for bankruptcy earlier this year.

The rest of Milpitas’ venture-funded companies represent a wide variety of sectors, including biotech, VR, and enterprise software. The mix is somewhat reminiscent of its larger neighbor, San Jose. But make no mistake; this isn’t San Jose.

Santa Clara

Santa Clara, home of Intel, Applied Materials, the new San Francisco 49ers stadium, and a lot of expensive houses, is a major hub for venture-backed startups. Companies in this city of 120,000 have raised more than $1.4 billion over the past three years.

The central pillar of the startup ecosystem here is enterprise technology. Think security, cloud storage, software-defined networking, and deeply geeky, complicated technologies that benefit from a talent pool filled by Cisco, Intel, and others. The biggest recipients of funding in the last couple of years include CloudMinds, a developer of distributed computing technology for AI-enabled robots, and Cohesity, developer of a hyper-converged platform for storing backup data.

Despite its heft as a technology powerhouse, however, Santa Clara doesn’t get a lot of specific recognition as a tech hub. It’s generally lumped in the greater sprawl known as Silicon Valley. A contributing factor may be that the other cities it borders, which include Sunnyvale, Milpitas, and San Jose, are no slouches in tech either.

Where Have All The Orchards Gone

The technology prowess of all these Peninsula and South Bay cities is all the more impressive when one considers what a short time they’ve had to grow. Prior to World War II, the area was best known as a center for fruit harvesting and canning. Today, the most valuable company here may bear the name of a fruit, but it focuses on (much) higher margin products.

Illustration: Li-Anne Dias