Key Takeaways
- • The San Francisco Bay Area still accounts for roughly 40% of U.S. venture capital investments, but urban San Francisco now outperforms suburban Silicon Valley, per Yale SOM professor Olav Sorenson.
- • New York City and the Boston area together claim about 20% of U.S. VC investment, with $11.3 billion and $12.7 billion invested respectively over the last five years.
- • Just 28 of the 3,140 U.S. counties account for 80% of VC investments over the last five years, with more than $50 billion of that flowing to the Bay Area.
- • Sorenson attributes the rise of New York and Boston to the convergence of three factors: an anchor university, a community of venture capitalists, and a startup culture.
- • Smaller hubs such as New Haven County ($586 million), Boulder County ($1 billion+), and the Research Triangle ($1.3 billion+) are growing because most venture capitalists invest chiefly near where they live.
- • Crowdfunding is emerging as a small but potential channel for entrepreneurs outside established hubs, with successful Kickstarter and Indiegogo campaigns coming from Salt Lake City and Boise.
Summary
Silicon Valley's venture capital ecosystem traces back to Fairchild Semiconductor, believed to be the first venture capital-backed company, founded nearly twenty years after Hewlett Packard's 1938 Palo Alto origins. The region has since produced Intel, Apple, Sun Microsystems, Google, and Facebook, among others. The San Francisco Bay Area still dominates the market with roughly 40% of U.S. venture investment, according to Yale School of Management research cited in the Yale Insights article.
The geography of venture capital is shifting within and beyond the Bay Area. Urban San Francisco now outperforms suburban Silicon Valley, and New York City and the Boston area, relative newcomers to the field, together account for about 20% of investments. Olav Sorenson, Frederick Frank '54 and Mary C. Tanner Professor of Management at Yale SOM, credits this rise to each region now having three necessary ingredients: an anchor university, a community of venture capitalists, and a startup culture. New York and Boston historically had universities and capital but lacked the culture to generate many startups. Sorenson said that once that culture developed, venture capital took off, adding that it is "very hard to have a thriving community if you don't have every one of" these factors.
Venture capital remains concentrated in a small number of centralized hubs. Just 28 of the 3,140 U.S. counties accounted for 80% of VC investments over the last five years, with more than $50 billion invested in the Bay Area, and $11.3 billion and $12.7 billion in New York and Boston, respectively. Smaller regional ecosystems nonetheless persist: New Haven County saw $586 million, Boulder County, Colorado, more than $1 billion, and the Research Triangle of North Carolina more than $1.3 billion over the same period. Sorenson said most venture capitalists invest chiefly where they live, noting that "social networks play a really important role at the early stages of a business."
Crowdfunding may begin to alter this dynamic by giving entrepreneurs outside established centers access to capital. Sorenson acknowledged that crowdfunding remains "a small piece of the puzzle" relative to venture capital, but pointed to successful Kickstarter and Indiegogo campaigns from Salt Lake City, Utah, and Boise, Idaho, places with engineering talent but without local venture communities.
The geography of venture capital is shifting within and beyond the Bay Area. Urban San Francisco now outperforms suburban Silicon Valley, and New York City and the Boston area, relative newcomers to the field, together account for about 20% of investments. Olav Sorenson, Frederick Frank '54 and Mary C. Tanner Professor of Management at Yale SOM, credits this rise to each region now having three necessary ingredients: an anchor university, a community of venture capitalists, and a startup culture. New York and Boston historically had universities and capital but lacked the culture to generate many startups. Sorenson said that once that culture developed, venture capital took off, adding that it is "very hard to have a thriving community if you don't have every one of" these factors.
Venture capital remains concentrated in a small number of centralized hubs. Just 28 of the 3,140 U.S. counties accounted for 80% of VC investments over the last five years, with more than $50 billion invested in the Bay Area, and $11.3 billion and $12.7 billion in New York and Boston, respectively. Smaller regional ecosystems nonetheless persist: New Haven County saw $586 million, Boulder County, Colorado, more than $1 billion, and the Research Triangle of North Carolina more than $1.3 billion over the same period. Sorenson said most venture capitalists invest chiefly where they live, noting that "social networks play a really important role at the early stages of a business."
Crowdfunding may begin to alter this dynamic by giving entrepreneurs outside established centers access to capital. Sorenson acknowledged that crowdfunding remains "a small piece of the puzzle" relative to venture capital, but pointed to successful Kickstarter and Indiegogo campaigns from Salt Lake City, Utah, and Boise, Idaho, places with engineering talent but without local venture communities.
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