Top U.S. Cities for VC Investment Dollars and Returns

April 17, 2018

A couple of weeks ago we looked at ranking areas close to the San Francisco, California area according to the amount of investment from venture capital (VC) investors and the return (based on the median return on invested capital).

This week we are looking at the same two numerical rankings – amount of attractive VC investment and median return on investment capital – by U.S. cities.

Attracted Investment Capital

Before looking, which city would you guess comes out on top for attracted investment capital?  You probably guessed the San Francisco-Bay area as the top place for venture capital dollars and you’d be right.  According to Pitchbook, the San Francisco-Bay area attracted a whopping $144 billion from 2010 to 2017, far ahead of second place.

Of course, anyone with any knowledge of the early-stage investing world knows that the San Francisco-Bay area dominates the funding world.  The harder part is guessing the other top 15 metropolitan areas.  Can you guess second place?

Perhaps not surprising, the second place area for venture capital money from 2010 to 2017 was the New York-Newark-New Jersey area.  During this period, the New York-Newark-New Jersey area garnered a quite respectable $55 billion.

In third place was the San Jose-Sunnyvale-Santa Clara, California area.  Businesses in this California area attract almost $53 billion from 2010 to 2017.  Fourth and fifth places went to the Boston-Cambridge-Newton area, capturing $45 billion worth of venture capital attention and the Los Angeles-Long Beach-Anaheim area, capturing over $29 billion in investment capital.

The other five cities in the top 10 include San Diego-Carlsbad ($13 billion), Seattle-Tacoma-Bellevue ($12 billion), Chicago-Naperville-Elgin ($11 billion), Washington D.C.-Arlington-Alexandria ($10 billion), and Austin-Round Rock ($8 billion).

Overall, there is no lack of venture capital money available for firms with potentially profitable products and ideas.

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Median Return on Invested Capital

The previous section focused on the dollar amount of capital invested in companies headquartered in certain broadly defined geographical areas.  Now, let’s look at the return on investment for invested VC capital by geographic area.  Before looking, take a guess at which area is on top.  Would you guess the San Francisco area again?  The results might surprise you.

Interestingly, in the top spot is the Chicago-Naperville-Elgin area, with a return of 8.5x.  The venture capitalists’ returns in the Chicago-Naperville-Elgin far outpaced second place Seattle-Tacoma-Bellevue, which offered venture capital investors a return of about 5.9x.  Still a healthy return, just not tops.

The other three members of the top 5 return club include companies headquartered in New York-Newark-New Jersey area (4.8x), the Philadelphia-Camden-Willmington area (4.7x), and the Los Angeles-Long Beach-Annaheim area (4.7x).

Perhaps surprisingly, the San Francisco-Bay area does not come into play until sixth place, with a median return on invested capital of 4.6x.

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Conclusion

In an interesting look at the attraction of investment capital by U.S. metropolitan areas, some unsurprising and surprising results show up.  The San Francisco-Bay area continues to dominate the investment capital dollars, although the area drops to sixth in overall return on invested capital.

The results on median return on invested capital are perhaps more surprising than the results on volume of invested capital.  Firms headquartered in the Chicago-Naperville-Elgin area offered investors the highest return of any area at 8.5x.

Overall, the venture capital world is alive and well heading into 2018.

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