Dramatic Shift in VC Funding Toward Rising Startup Cities Like Phoenix, Reveals Report

“We’ve been visiting, backing, and spotlighting companies in rising startup communities for the last decade, recognizing that in order to understand what helps and hinders entrepreneurs, you need to meet them where they are,” said Steve Case, CEO and Chairman of Revolution. “As longstanding investors in rising cities and evangelists for leveling the playing field, we are excited by the recent momentum. It appears we’re at a tipping point, and Silicon Valley’s lock on the innovation economy is finally breaking. The VC firms that make this a priority – going beyond the initial step of convenient Zoom pitches, and instead starting to spend real time on the road so they can understand what’s unique and special about each city – will likely lead in this next wave of innovation. We look forward to opening up Revolution’s unique network of local founders, entrepreneurs, and community leaders, and adding to the roster of 300+ VC firms with which we’ve already co-invested.”

Key findings in the report which demonstrate the shifting momentum in the national VC landscape include:

Coastal Investors are Looking Elsewhere

1. The proportion of seed- and early-stage VC going to Bay Area startups has been declining, with a noteworthy drop starting in 2019. In 2021, that ratio is on pace to be below 30% for the first time in more than 10 years.
2. 2021 is already a record year for Bay Area- and New York City-based VCs investing outside the Bay/NYC/Boston, with $24 billion deployed in 2021 YTD, versus just $4 billion a decade ago.

Many Cities Are Seeing the Benefit of Increased Funding

1. Over the last decade, 13 U.S. cities outside of the Bay/NYC/Boston have raised more than $1B in rounds that included a Bay Area investor, while 10 U.S. cities have raised more than $1B in rounds that included a NYC-based investor. Several cities on the two lists overlap, however, the cities raising more than $1B in rounds including Bay Area investors skew west (and east for those including New York City-based investors), suggesting that proximity still plays a role.
2. The report features perspectives from leaders in a range of rapidly rising cities, including Washington, D.C., Denver, Chicago, Philadelphia, Dallas, Raleigh-Durham, Phoenix, Salt Lake City, and Minneapolis.

New Investors Are Driving Regional Momentum

1. There are more than 3,000 active investors outside the Bay/NYC/Boston, up from 1,000 in 2011. This includes more than 1,400 new institutional VC firms launched outside of the Bay/NYC/Boston—these new firms are more likely to invest in local/regional startups, creating new sources of local capital and insight across the country.
2. As a result of the growing recognition that innovative companies are starting and scaling in dozens of cities, and the growing attention VCs are paying to rising cities, 2021 will be a record year for capital raised by VCs outside the three major tech hubs, with a 700% increase, to $21 billion, over the past ten years.

To read the full “Beyond Silicon Valley” report, visit https://revolution.com/beyond-silicon-valley-report/.

Revolution is a D.C-based investment firm focused on investing in entrepreneurs building transformative companies outside of Silicon Valley. Through its family of funds—The Rise of the Rest Seed Fund, Revolution Ventures, and Revolution Growth – Revolution partners with founders at every stage of the startup lifecycle.

Revolution’s Rise of the Rest is a nationwide platform led by Steve Case focused on spotlighting regional startup hubs. The Rise of the Rest Seed Fund invests in early-stage, high-growth companies across the country. The team partners with regional ecosystem leaders and co-investors to build and scale the next wave of transformational startups. The Rise of the Rest Seed Fund is backed by a group of iconic entrepreneurs and business leaders who believe that the next great startups are located outside of coastal tech hubs.