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Venture Fell More Than 40% In Hottest States For Funding

Illustration of US Map with California, Massachusetts and New York overlay.

Venture funding to the holy trinity of the startup world — California, Massachusetts and New York — fell sharply last year from 2021’s lofty heights.

All three states saw a precipitous drop — more than 40% in each case — in 2022 venture funding to startups based in their borders, according to Crunchbase numbers. Deal flow also fell.

But while the declines are striking, it is notable that last year was still an increase from 2020.

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Also, despite the drops, the three states still far outpace other states in venture. Massachusetts startups saw nearly twice the amount of venture Texas — the fourth-biggest state for venture — startups got. (Although, Texas, North Carolina and Florida posted notable gains in VC funding last year, when most other states saw declines.)

“Those three will continue to be the leaders, that is not going to change,” said Steve Case, founder of Washington, D.C.-based venture firm Revolution, which focuses on investing outside the major hubs of Silicon Valley, New York and Boston.

The Golden State

California was the state with the biggest dip in terms of dollars. That’s not too shocking, considering it is by far the largest venture economy in the U.S.

Venture funding to the state fell 42% in 2022, from a high of $157.4 billion in 6,419 deals to $91.9 billion in 4,296 deals. The deals number represents a 33% decline in volume and the lowest deal count since at least 2017.


Then again, it is important to remember that in 2020, California-based startups raised $76.4 billion in 5,418 deals. Compared to that dollar figure, last year represented a 20% increase.

Funding slowed in several areas, but California — with its mature startup ecosystem and high valuations — was undoubtedly hurt by the decline in the large growth rounds the venture world witnessed.

While companies like SpaceX, Anduril Industries and Cruise saw huge billion-dollar-plus rounds last year, it is interesting to note the state saw only 13 half-billion-dollar rounds in 2022 compared to 33 in 2021.

The Empire State

Although California’s venture decline was eye-catching, it was not the largest percentage drop by a state. That dubious honor belonged to New York.

New York saw venture funding in the state drop from a high of $52.3 billion in 2,726 deals to $26.5 billion in 1,902 deals. That’s a nearly 50% decline in dollars and a 30% fall in deal flow.

The deal count is the state’s lowest since 2017.

Much like California, however, New York’s 2022 venture investment numbers were higher than those of 2020, which saw $23.3 billion go to startups in 2,181 announced rounds.

Also similar to the Golden State, New York saw a drop in large rounds. In 2022, New York startups took in 59 rounds of $100 million or more, compared to 84 in 2021.

The state’s numbers also were likely affected by the drop in fintech funding. While it’s hard to pin California’s downturn on just one sector — it’s home to a large number of startups in so many different industries — New York’s most dominant sector has normally been fintech, which faced a very bumpy funding road in 2022.

Indeed, the largest round raised in the state by a startup went to a fintech company. Brooklyn-based Web3 and fintech startup ConsenSys closed a $450 million round. The company develops decentralized protocols software to help developers build blockchain-based financial infrastructure.

Other New York-based startups that raised large rounds of more than a quarter-billion dollars last year include smart city firm Sidewalk Infrastructure and e-commerce provider Wonder.

The Bay State

Coming in just after New York for the biggest percentage drop in funding is the third state in the VC trinity — Massachusetts.

The Bay State saw a 46% decline in venture to its startups last year. While 2021 saw $35.7 billion in 1,119 deals, those numbers declined to $19.5 billion in 810 deals.

Similar to New York, the slowdown in deal count was a 28% drop from 2021, and the lowest number since 2017.

The numbers in the state were also hurt by the fact there were 97 large, $100 million-plus rounds in 2021, but only 62 last year.

Interestingly, while Massachusetts is known for biotech, the three largest rounds in the state last year went to a variety of other industries:

Different times

Case said the numbers are not surprising when large growth rounds were so down last year and all three states have a mature startup ecosystem accustomed to huge mega rounds.

While Case said he does not see any of the trinity being dislodged from the top three spots when it comes to venture, the pandemic has changed some aspects of fundraising.

Those things include people who moved to different areas of the country during the pandemic and are now more likely to start their own companies in those areas one day, as well as those who may have suffered one of the many massive layoffs sending shockwaves through tech.

The pandemic also opened up more of the country to investors, causing them to explore other areas — something they are not likely to abandon now.

“Pre-pandemic, it was inconceivable for some investor to back a company outside of a place like Silicon Valley,” he said. “But once they started, they realized the opportunities. It’s not inconceivable anymore.”

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Illustration: Dom Guzman

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