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PE & VC News

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.

map1

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.

map2

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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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).

map 1 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.

map 2 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.

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Pitchbook is out with their most recent list of the 20 most valuable venture capital-backed companies in the U.S.  We will take a look at which  companies show up on the list.

The Top 5

The following is the top 5 most valuable companies backed by venture capital funding in the U.S.  Interesting, even after all the strife Uber has been through, Uber tops the list at a valuation of about $69.6 billion.  The eight-year old company was founded in San Francisco and its most recent round of financing netted $1.3 billion.

Switching ride sharing for home sharing, in second place Airbnb’s most recent estimated value is an amazing $31 billion.  The company, founded in 2008, recently went through a $1 billion financing round in March 2017.

In third place is Wework, a New York-based shared workplace business.  The company last went through a financing round of $4.4 billion in August 2017, which valued a company at $21 billion.

In fourth place is Spacex.  The Hawthorne, California-based company is worth an estimated $20.8 billion, having recently gone through a $450 million financing round in November 2017.

In fifth place is Palantir, the secretive big data platform used by governments and big business.  Palantir is worth an estimated $20.5 billion after going through an $880 million financing round in January 2016.

Top5 Source: Pitchbook

Ranks 6 – 10

The next five most valuable venture capital-backed companies are as follows.

Number 6 is Pinterest.  The San Francisco-based company, founded in 2010, recently went through a $150 million financing round in June 2017 that valued the company at $12.3 billion.

In seventh place is Samumed, a company engaged in small molecule drug development.  The San Diego-based company, founded in 2008, has a value of $12 billion based upon a $100 million financing round in January 2016.

Following in eighth place is Lyft.  Another ride-sharing company and chief competitor to top-ranked Uber, is worth an estimated $11.7 billion based upon a $1.7 billion financing round in March 2018.

In ninth place is Stripe.  The San Francisco-based company is worth an estimated $9.2 billion, based upon a November 2016 $150 million financing round.

Rounding out the top 10 is the biotechnology company, Moderna.  Based in Cambridge, Massachusetts, they recently went through a $500 million financing round in February 2018 that valued the company at $7 billion.

Top6to10 Source: Pitchbook

Ranks 11-20

Among the remaining top 20: Magic Leap ($6.4 billion), Vice ($5.7 billion), Slack ($5.1 billion), MachineZone ($5 billion), SoFi ($4.4 billion), Instacart ($4.2 billion), Intarcia ($4.1 billion), Houzz ($4 billion), Wish ($4 billion), and Tanium ($3.6 billion). The figure below lists the others.

EntireList Source: Pitchbook

Conclusion

In a review of Pitchbook’s most recent accounting of the top 20 most valuable venture capital-backed startups, the list include some very well-knows names in the business and retail world, including Uber, Lyft, Airbnb, Instacart, and 16 others.  Overall, the entire value of these 20 companies sums to an astounding $262 billion.  The world of venture capital-backed startups is alive and well.

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What are Global Ltd. Partners Most Concerned About in 2018?

March 5, 2018

We’re a couple months into 2018, and Private Equity International is out with survey results on the question – “What are global limited partners (LPs) most concerned about in 2018″? Before looking at the results, what would you guess the LP responses are?  Would you guess a recession?  Perhaps trade wars?  A terrorist attack?  A […]

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What are the Top 25 Private Equity Firms and How Much Did They Raise Recently?

February 19, 2018

Private Equity International is out with their annual PEI300 report, which details the top 300 private equity firms by amount raised.  Before looking, which companies would you guess would be on top? The Broader View Before taking a look at the list of the top 25 private equity firms, how much would you guess the […]

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Are Unicorns Frequently Overvalued?

February 6, 2018

A couple of professors out of Stanford University and the University of British Columbia are out with a new, fresh look at the intricacies of venture capital valuations (Squaring Venture Capital Valuations with Reality, National Bureau of Economic Research Paper #23895).  Their topic is unicorn valuations, and specifically whether so-called unicorn valuations are frequently overvalued.  […]

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The 2017 Startup Graveyard

January 23, 2018

Pitchbook  is out with a fascinating look at the so-called 2017 “startup graveyard”.  There are 11 companies on Pitchbook’s list. Let’s take a look. The Startup Graveyard On top of Pitchbook’s list of notable 2017 failures is Jawbone.  Jawbone manufactured speakers and wearable technology, and at one point had a valuation of $1.5 billion, with […]

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Taking a Look at 2017 Mergers and Acquisitions in Emerging Technology

January 8, 2018

The 2017 year is over, and as such, what better time than now to take a look at how things performed in 2017.  The topic is mergers and acquisitions (M&A) in emerging technology. Top Corporate Acquirers Since 2007 Before looking at the 2017 figures, which corporate acquirer would you guess comes out on top since […]

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A Look Back at Venture Capital in Recent Years

December 25, 2017

The year is almost over, and what better time to take a look back at the state of venture capital over the past few years than now. Distributed to Paid in Capital (DPI) Multiples First off, which year between 2006 and 2013 would you guess would have the best DPI multiples?  Would you guess perhaps […]

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How Did Financial Job Growth Compare in 2017?

December 12, 2017

The year is almost over, which makes now a perfect time to take a look back and see how job growth in the financial industry did compared to other industries.  Here’s a look. The Broad View Before looking at the growth in jobs in the financial sector compared to all other sectors, here’s a background […]

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