2019 was a fantastic year for Venture Capital investment in San Diego county. For the first time since the turn of the century and the dot-com bubble, VC investment in San Diego eclipsed $2B two years in a row. The 2018 San Diego Innovation Report concluded that the 2018 calendar year saw a total of $2.8B invested across the county according to data pulled from PitchBook, while data from 2019 points to a figure around $2.5B invested in the region, according to PwC/CB Insights MoneyTree.
What we heard at Venture Outlook on Tuesday is similar to last year: expectations for the 2020 venture ecosystem are tentatively hopeful. While we hope to continue the trend and have a third consecutive $2B year, we can’t expect that these deals and dollars will just fall into San Diego’s lap. According to David Coats, San Diego’s most well known industry — biopharma — saw a reduction in the total percentage of dollars invested, dropping significantly to 43% in 2019. Rather than this demonstrating a reduction in investment in biopharma, it more directly points to the growing power and notoriety of San Diego’s tech sector.
One thing that might be fueling this shift is that tech startups (especially those focused on a software product or solution) tend to require less capital to reach an exit or liquidity event, where investors can recuperate their investment or realize their gains. As a result, firms might be investing in a larger number of smaller deals to spread out their investable dollars and hopefully reduce the risk of losing money over the life of the fund.
According to Bobby Franklin, data from the National Venture Capital Association and PitchBook in 2019 show San Diego ranked as the #8 US Metro area by Venture Capital deal count and #7 in total dollars invested. This continues the trend of San Diego being a top ten US Metro area for Venture Capital investment, although some areas like the Seattle-Tacoma, Washington region have surpassed San Diego over the last couple of years and areas like Denver-Aurora, Colorado and Austin-Round Rock, Texas are gaining on our region as their startup communities continue to grow. According to PwC/CB Insights MoneyTree, the top three Metro areas for dollars invested in 2019 were San Jose-San Francisco-Oakland, New York-Newark, and Boston-Worcester-Providence.
One thing that might help us reach the $2B mark again this year is the rapid increase in large, later stage deals in the venture capital industry over the last few years. According to David Coats, over 50% of the dollars invested in the last five years have been part of a large, later stage deal. Now that San Diego has had a few years of continued growth and success, we may see more large investment rounds that would help our region reach that $2B threshold again and bring more attention to the region as a potential home base for tomorrow’s best and brightest entrepreneurs.
2020 seems poised to be another successful fundraising year for the San Diego startup economy, but it’s difficult to accurately predict what we will see. Venture capital firms are raising some of the largest funds in the history of the industry, and the amount of capital available for investment is about the best it has ever been. One way we here at Connect w/ SDVG are working to bring more venture investment into San Diego is our annual Cool Companies program. We give local tech and life science startups the opportunity to meet one-on-one with VCs. Applications are open now at www.connect.org/cool; spread the word to the startups and entrepreneurs you know!
The money is out there and if San Diego continues the supportive and collaborative environment that has been fostered here, a year from now, we’ll look back on a successful 2020. Let’s get it done!