Go West for Capital Young Man (or Woman)

Source: Created from data from the National Venture Capital Association

When Steve Jobs wanted money for Apple Computer in the late 1970s, he got financing from Silicon Valley venture firm Sequoia Capital. Roughly 40 years later, in 2009, when Brian Chesky needed funding for Airbnb, he got an investment from the same Silicon Valley venture capital firm.

Not only has Silicon Valley been the place to go for venture capital for over 40 years, its position has become more dominant.

Sell Your Business

Discover the Zoho Ecosystem

Drive Traffic to Your Website

Not everyone agrees. In a recent Harvard Business Review article, Ian Hathaway of the Brookings Institution argued that venture capital investments have become less concentrated in traditionally strong locales like Silicon Valley. Focusing just on initial rounds of venture capital between 2009 and 2014, he found that “a non-trivial amount of catch-up by other cities has occurred.”

This pattern might be true for initial financings in just the past few years. Moreover, investment activity might be diffusing out from secondary locales like New York, Boston and Austin to tertiary locales like Cleveland or Madison. But would-be Unicorn founders, do not delude yourselves! If you want venture capital, go to Sand Hill Road.

Over the past 30 years, venture capital activity has become even more concentrated in Silicon Valley than it was when Bill Gates was the poster child for young entrepreneurs.

National Venture Capital Association data shows that Silicon Valley companies received 23.4 percent of venture capital investments and 28.2 percent of venture capital dollars over the 1985 to 1989 period. From 2010 and 2014, companies in the valley accounted for 37.7 percent of deals and 42.5 percent of investment dollars.

Small Business Deals

The chart above shows the change in the Silicon Valley fraction of U.S. venture capital deals and dollars from 1985 to 2014. The red line in the chart shows the deals, while the blue bars show the dollars. The dotted lines show the linear trend, red for deals and blue for dollars.

While the linear trend is far from perfect — an R-squared of 0.69 for deals and 0.68 for dollars — the pattern is clear. More venture capital activity is concentrated in Silicon Valley now than in the late 1980s.

Image Source: Created from data from the National Venture Capital Association 1 Comment ▼

Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

One Reaction
  1. Seems like a case of hard data backing up observation. Good find!