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California No. 1 for Investment in Young Companies

Monday, April 22, 2019

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Since 2010, California companies raised $330 billion in venture capital — 51 percent of the nationwide investing.

California is the golden state for venture capital, snaring more seed money for young ventures than the rest of the nation. California not only was No. 1 for investments dollars, it also grew its share of VC cash. Companies in the state also saw significantly more venture deals than elsewhere in the U.S.

And it’s not just Northern California. Split the state in half — say, somewhere around Coalinga — and the rankings for venture capital cash raised goes like this: No. 1 Bay Area; No. 2 New York; No. 3 Southern California, then Massachusetts, Texas, Washington and Illinois.

California’s allure seems somewhat curious in light of numerous rankings that suggest the state doesn’t offer a very business-friendly climate. Well, to the people who write venture capital checks — big-time investors who have a nation’s worth of companies to bet on — California is a place to be.

Let’s look at Dow Jones VentureSource data sliced into two periods: the 2000s (an era that included both the dot-com bust, the Great Recession and the e-commerce boom) vs. this decade through 2019’s first quarter as mobile technologies and numerous medical breakthroughs took off.

Since 2010, California companies have raised a combined $330 billion — that’s 51 percent of the $650 billion in venture funding nationwide. It’s never easy for any industry leader to grow market share, yet California’s slice of venture capital is up from 47 percent of the national take in the 2000s.

How? The statewide bounty, measured on a quarterly basis, grew swiftly — up 106 percent from the 2000s. In the rest of the U.S., venture capital funding increased, too, but only by 40 percent this decade.

The number of California deals is growing, too, but not outpacing the rest of the nation as dramatically. Companies in the Golden State saw 19,024 venture rounds this decade, 41 percent of all deals nationwide and up 44 percent from the 2000s. In the rest of the nation, deal making rose 36 percent. So basically, these risk-savvy investors were willing to gamble more — and more often — in California.

Venture capitalists are by no means saints and their dollars are not the chosen funding tool of all startups. And the technology industry, for all its glitter and wealth, has its share of headaches, too. Still, tech defines California’s status as a leading business game-changer. And the cash-raising advantage is critically important to the state’s economy.

California continues to be among the nation’s leaders in job and wealth creation, in good part because of its creative culture and infrastructure that nurtures — and funds — novel ideas. Innovators looking to change business paradigms around the globe know that ideas bred in California have better odds of getting this must-have seed money.

And venture dollars are by no means easy money. The young firms getting funds are often high-stakes gambles taken by entrepreneurs and investors alike. So, nothing is ever guaranteed, economically speaking. Especially in the world of innovation.

Note that in the past two years, statewide venture funding still was half of the national take. But it grew only 2 percent compared with the previous two years vs. 7 percent growth in the rest of the nation. So nobody in California should take this lucrative venture capital advantage for granted.

Yet this historically heavy flow of cutting-edge investments into California enterprises stacks the odds in favor of the next big things having California lineage.

Source: Orange County Register

Category: Economic Development, Economic News, Business News