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US Venture Capital activity jumps, shifts South and East during Q2

US Venture Capital activity jumps, shifts South and East during Q2
on August 15, 2023
US Venture Capital activity jumps, shifts South and East during Q2

While venture capital funding in the United States is still lagging far behind the massive totals tracked back in 2021, startups raised more than $15.4 billion from VCs during Q2 2023. 

This is up 26 percent from Q1, and a healthy rebound for early-stage companies in particular. However, the total number of VC deals remained relatively flat (just over 1000) from Q1 to Q2, according to data from Carta, which is the least amount of activity tracked since Q1 2018. 

To that end, while the average deal size increased from $10.4 million in Q1 to $13.1 million in Q2, 2023 is currently pacing to be the least active year for US VC funding in at least half a decade.

Still, startups and scaleups across the US are finding access to venture capital in unexpected places and emerging markets as the traditional hot spots for investment (ie. Silicon Valley) share some of the wealth.

Venture capital “hubs” shifting in the United States

In early 2018, the West (including Silicon Valley) saw 64 percent of all US venture capital investment—the highwater mark since Carta started tracking VC activity stateside. In Q2 2023, that number shrank to a new low of only 44 percent.

But as total VC funding moved out of Silicon Valley—not a huge surprise given the struggles facing both Big Tech and startups relying on the local ecosystem for funding—there were significant gains in the South and Northeast corners of the country.

In Q2 2019, the South accounted for only 10 percent of startup capital in the US. Today, that number has doubled to 20 percent, as tech hubs across the South have shown a rise in both investor attention and technological innovation. Just recently, cities like Austin, Atlanta and Raleigh-Durham all were among the top 10, 20, and 30 talent markets (respectively), unseating or usurping more traditional West Coast tech centers.

At the same time, while the Northeast has enjoyed a greater share of VC attention compared to the South from the start (tracking 25 percent of investments in Q2 2019), the region continues to build momentum four years later, mounting 30 percent of all VC activity in Q2 2023. 

This comes as East Coast cities like New York, Boston and Washington D.C. all occupy spots in the top 10 for tech talent in North America as ranked by CBRE

Venture funding slow, but plenty of “dry powder” in the cannon

It’s worth bearing in mind that the lower total investments aren’t a direct reflection of how well specific venture capital firms are performing. While habits have shifted markedly since many investors went on a spending spree back in 2021 (due in large part to a surge in pandemic-era startup activity), many firms are simply sitting on their capital longer before writing checks. 

According to a recent article from The Information, leading VCs have more than $271 billion in assets that haven’t been allocated to a specific investment (known as “dry powder”) as of August 2023. 

All of that is to say that VC funding hasn’t bottomed out, and there’s still plenty of room for startups and scaleups to achieve growth through partnerships and investments.

But there are also a wealth of non-dilutive funding options that companies at any stage can tap into to fuel their runway and diversify their capital strategy. 

What founders can do to extend their runway while fundraising

The United States offers a wealth of tax credits aimed at innovative businesses that focus heavily on R&D, for instance, while local and state governments are awash in grants and programs aimed at spurring homegrown innovation.

To learn more about how to navigate the R&D tax credit program in the United States, download our Ultimate Guide

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