How Do the Bay Area’s Returns Vary By City?

Pitchbook, the private equity and venture capital data provider is out with a fascinating look at venture capital returns and venture investments by city within the Bay area (broader San Francisco area).

Before looking at the map of amount of funds investment and the associated returns, take a guess at which cities you think would be on top?  Would you guess Palo Alto?  Or San Jose?  Or perhaps the city of San Francisco itself?  Do you think the return figures will generally align with the amount invested by city?  Or, will cities with perhaps a smaller amount of attracted capital produce higher returns?

Amount Invested

Reported first below is a ranking of the top ten cities in the San Francisco Bay area according to the amount of attracted capital.  Perhaps unsurprisingly, the city attracting the largest amount of invested capital is San Francisco, having attracted a massive $88 billion in capital from 2010 to 2017.

Interestingly, although not that surprising, in second place is Palo Alto at about $15 billion (pretty paltry in comparison to San Francisco).  In third place is Redwood City at $12 billion.  Rounding out the top five are San Jose ($10 billion) and Mountain View ($10 billion).

The bottom half of the top ten includes Menlo Park ($8 billion), San Mateo ($7 billion), Santa Clara ($7 billion), Sunnyvale ($7 billion), and South San Francisco ($5 billion).

Source: Pitchbook

Return

Let’s now switch to the top ten cities ranked according to the median multiple on invested capital.  Another way of saying this is that the rankings presented in the map below are based upon the ratio of exit value of the companies relative to the total amount of venture capital funding raised.

With the total investment universe now known, do you want to take a second guess at which cities produce the highest returns in the San Francisco Bay area?

Interestingly, and somewhat surprisingly, San Francisco is not only tops in the amount of investment capital attracted to companies headquartered there.  Companies based in San Francisco also produced the highest return at 5.7x.

The other members of the top five include Palo Alto at 5.1x, San Mateo at 4.6x, South San Francisco at 4.3x, and Santa Clara at 4.1x.  Unsurprisingly, this top five list is not the same list as the top five cities for investment capital.  South San Francisco shows up as perhaps the largest outlier, with companies headquartered there producing the third highest investment return even though South San Francisco shows up in tenth place on the amount of investment capital attracted.  San Mateo and Santa Clara are also out-performing what the invested capital would predict.

The remaining return figures are San Jose at 4.1x, Mountain View at 4.0x, Redwood City at 3.8x, Menlo Park at 3.7x, and Fremont at 3.3x.  Interestingly, Fremont shows up on the top ten of return cities even though Fremont is missing from the top ten cities for attracted investment capital.

Source: Pitchbook

Conclusion

In a fascinating look at the returns companies have produced according to cities within the Bay area, companies in San Francisco attracted not only the largest amount of investment capital, but also produced the highest investment return.  Pitchbook’s study also provides a fascinating look at how companies headquartered in other cities have fared.