As any entrepreneur who's spent some time trying to understand the venture capital universe will tell you, VCs typically invest locally. The logic goes like this: Having startups to invest in nearby makes it easier for both parties to interact, get guidance, brainstorm, etc.
So if an entrepreneur believes that getting venture capital is incumbent to his startup's success and location is important to venture firms, it's probably worth spending some time thinking about where your startup will call home. A look at the Q3 2009 venture capital funding statistics compiled by ChubbyBrain offers a data-driven view of venture investment by geography, which may help entrepreneurs with another data point as they consider the age-old question of location, location, location. (For a data-driven perspective into the world of venture capital, download the free 44-page Fast Company-ChubbyBrain Q3 VC Activity Report.)
First, let's start with the easy solution. Set up in California, specifically Silicon Valley.
Okay, no data is really required to support this, but recent venture capital activity data from ChubbyBrain clearly makes the case for the left coast. In Q3 2009, ChubbyBrain noted a climb of overall venture investment to $6.1 billion. California represented $3.43 billion of this--over 50%. Versus Q2 2009, California saw a 51% jump in dollars invested and a 40% jump in deals. Essentially, California extended its dominance of venture capital in the third quarter of 2009. The regional graph below shows amount of funding and number of deals by various U.S. regions, and California is denoted as its own region. The dominance of the state is clear.
And the reality is that the deal dominance is well-diversified based on sector. California is not a one-trick pony that dominates just the internet or energy sectors. It is a multi-headed monster that showed healthy investment activity across all main sectors of venture investment in Q3 2009 as the graph below illustrates.
Although a seemingly easy solution based on the data, California may not be ideal for everyone--for a variety of reason. So what's next? Let's explore regionally at a high-level. New England, driven primarily by a strong Massachusetts-based venture community, is another popular home for startups. In Q3 2009, 98 deals representing more than $700 million, closed in Massachusetts, 80% of the total VC funding in New England. The region's data shows investment across a wide variety of sectors but health care and Internet dominated in the quarter, with over 60% of deals as shown below. New England underscores the need to look at aggregate deal statistics and the various sectors receiving the most dollars--by region and state.
The South-Atlantic, which consists of states like Georgia, the Carolinas, and Florida, did quite well in Q3 from a venture investment perspective, ringing up over $540 million in funding across 63 deals. While there are a variety of sectors seeing investment, the region sees a larger than average share of health-care deals, with almost 40% of deals in the region being for health care companies. This may mean good things for health care-oriented entrepreneurs, but the data suggests that budding green tech entrepreneurs may not see the South Atlantic as the most ideal destination for their venture.
The next big region worth looking at is the Mid-Atlantic, which includes New York, New Jersey, and Pennsylvania. While healthy levels of investment in the region are apparent in Q3 2009 with 72 investments garnering over $420 million, it is the region with the smallest average deal size. This is largely because the region is driven by investment in New York, which sees a much larger portion of investment going to internet-oriented businesses that require less investment capital than, for example, health care or energy businesses. The region also underscores the heterogeneity of investment from state to state. New York, as the Q3 data shows, is very friendly to Internet startups but might not be the first stop for a health care venture. Pennsylvania on the other hand offers a seemingly good home for health care ventures based on Q3 2009 activity.
And finally, if you are an entrepreneur in the middle of the country and you really want venture investment, bad news: There is not a lot going on in your neck of the woods (see first graph again). In these areas, ChubbyBrain has seen efforts underway by local governments, various governmental public-private partnerships, angel investors, and a handful of small venture community members spurring investment, but these laudable efforts will take time and their ultimate efficacy is unknown.
While going region by region is possible with ChubbyBrain data, the point is hopefully clear. Location can have real implications for funding. Having investors close by who know and invest in your space is not only helpful for capital but will also likely indicate a healthy startup ecosystem, full of service providers, partners, and more. Ultimately, if you're casting a line hoping to snag elusive venture capital, you'll want to go fishing where the fish are.
Fast Company has partnered with ChubbyBrain, an information services company tracking the innovation economy, to provide a quantitative perspective on what is happening in the worlds of VC and angel investment. Look for additional posts leveraging ChubbyBrain data in the coming days and weeks.