Last week, The New York Times published an article arguing that a “wave of venture capitalists is heading to quieter, less-expensive locales, where they are helping fund start-ups.” The article supported this claim by pointing to three venture capitalists who left Silicon Valley and launched funds in other places. One of them, Mark Kvamme, left Sequoia Capital to found Drive Capital in Columbus, Ohio; but that was back in 2013.
I don’t doubt that some venture capitalists have left The Valley to start funds elsewhere. However, The Times is massively overselling the reality. It is already well-advertised that venture-backed startups (the recipients of venture capital) are highly concentrated by geography. However, venture capitalists (the ones investing in startups) are concentrated by geography even more. Let’s take a look at the data.
The chart below illustrates the geographic concentration of venture capitalists along four dimensions: firm counts, active portfolio companies, assets under management (value of portfolios), and dry powder (venture capital available to be deployed). I aggregated the four measures by U.S. metropolitan area according to each active venture capital firm’s headquarters location. The data are presented as a share of the U.S. total.
To no surprise, the San Francisco Bay Area (including the San Francisco and San Jose metropolitan areas) dominates: 28 percent of active venture capital firms in the United States are headquartered in this region, yet 42 percent of active portfolio companies, 55 percent of portfolio company value held, and 56 percent of venture capital available to (Read more…)