SF Bay Area Share Of Startup Funding Hits A Multiyear High

The share of U.S. venture funding going to companies in the San Francisco Bay Area hit a multiyear high this year, boosted largely by the AI boom.

Altogether, companies in the region pulled in $49.3 billion in seed through growth funding to date, per Crunchbase data. That represents approximately 41% of the entire U.S. total, the highest share in years.

For perspective, we charted out the percentage of U.S. startup investment going to Bay Area companies for the past five calendar years:

It should be noted, however, that the Northern California region is getting a larger slice of a much smaller pie. Overall, U.S. startup funding is down 40% in 2023 compared to the same period last year.

The San Francisco Bay Area, as the chart below illustrates, also saw a run-up to the 2021 peak, followed by a sharp decline. That said, funding this year is down 25% from the year-ago period — significantly better than the national average.

AI

It’s possible to explain the Bay Area’s relatively resilient funding in two letters: AI.

San Francisco is home to the biggest fundraiser in the space, OpenAI, which has secured over $10.3 billion this year, principally from Microsoft. That alone accounts for about a fifth of the region’s funding.

Rival San Francisco-based AI unicorn Anthropic, meanwhile, pulled in at least $2.65 billion in known funding this year from lead backers including Amazon and Google. And Palo Alto-based Inflection AI, developer of large AI language models, raised $1.3 billion in a June financing led by Microsoft and Nvidia.

The funding spree comes as the Bay Area cements its status as a capital of artificial intelligence innovation. Much of the buzz is in San Francisco specifically, with the city’s Hayes Valley neighborhood apparently so densely populated with AI talent that it’s now also known as “Cerebral Valley.” It also helps that the world’s largest population of venture capitalists is nearby.

Deal flow is a mix of outsized rounds and smaller, earlier stage bets. So far this year, at least 27 Bay Area companies with an AI focus have raised rounds of $100 million more, per Crunchbase data. Yet roughly two-thirds of the 250-plus rounds in the space are at pre-seed, seed or Series A, with a median size of around $6 million.

Location, location, location

The Bay Area’s strong showing on the fundraising front comes amid a period of often critical coverage of the region, and San Francisco in particular. Images of sprawling homeless encampments, large-scale retail theft, and other emblems of urban blight populate social media feeds and headlines of select news outlets.

Plus, there’s the famously high cost of living. Median home prices recently hit $1.3 million, and pads in the priciest ZIP codes go for multiples higher. Average monthly rent for a 2-bedroom apartment in San Francisco is around $4,000.

But as anyone who’s spent time in the Bay Area can attest, other qualities — scenic beauty, mild climate, cosmopolitan culture — have their allure. For those in tech, there’s the added draw of being in the global center of the action.

Notably, the largest funding recipients are companies that do expect employees to show up in person. At OpenAI, the vast majority of open positions are based in San Francisco, as is also the case with Anthropic, which states on its website that: “We expect all staff to be in our office at least 25% of the time.”

Open positions — which at the above-mentioned companies commonly start at $300,000 — appear to take into account the fact that they’re not based in a locale known for its cheap living.