STATE-BY-STATE VENTURE CAPITAL PROFILES

Welcome to SSTI's easy-to-navigate guide to state venture capital data and trends. Click on a state name in the left-hand column or on the map below to get information on deals and total investment in each state since 1995, and as well as each state's share of overall US venture activity. The profiles also includes graphs of this information, which can be used in your own research and presentations. Scroll down for analysis on recent venture trends. The information posted on this site is based on the PricewaterhouseCoopers/National Venture Capital Association MoneyTreeTM Report with data from Thomson Financial.


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Analysis & Trends

Looking at State Equity Intensity Changes Leader Board

SSTI’s VC Dashboard Value Enlarged with Addition of Per Capita Data
The runaway success of California and a few other major venture capital centers in the U.S. has made it difficult to get a firm grasp on the venture capital scene in the rest of the country. In the April 16, 2008 issue of the SSTI Weekly Digest, SSTI looked at the impact of removing California from the data to get a clearer picture of how venture capital investment is distributed throughout the other 49 states. This approach, however, does not make it any easier to evaluate a state's venture activity relative to its actual capacity for investment. Such a study would require reliable metrics on the demand for investment, which we have yet to uncover.

In the absence of such metrics, it may help to examine each state's amount of investment and number of deals at the broadest and most general standardization level -- venture capital investment relative to the state’s total population. While total population is no substitute for data on investment capacity, it can provide a thumbnail sketch of how states are performing in light of their size. This approach could also help deconstruct the success of state with larger populations, such as Texas, New York and California. It also may suggest a degree of equity intensity for each state relative to similar sized states and the national average.

Equity Intensity Measured by VC Dollars Per Capita
Though Massachusetts perennially places a distant second to California in total venture capital dollars, the state has outperformed California in per capita investment every year since 1995, the year our data set starts. At the height of the tech boom in 2000, Massachusetts was securing $1,631.75 per person in venture capital investment. The state also has maintained the highest number of deals per capita, with 67 deals per 1,000,000 residents last year. Taking population into account, however, moved California to second place in investment. California took in $377.61 per person last year, well over the national average of $100.28. Massachusetts received $540.97.

Revealing how skewed the data is toward the states with the greatest intensity, only seven states finished last year with per capita figures higher than the national average: Massachusetts, California, the District of Columbia, Washington, New Hampshire, Colorado and Maryland. Among these leading states, the District of Columbia (DC) and New Hampshire benefited the most from the transition from total dollars invested to per capita dollars. DC ranked 23rd last year in total investment but has risen from a post-tech boom low of $35.13 per capita in 2002 to $226.43 in five years. New Hampshire ranked 21st last year in total dollars, but took fifth place in the per capita rankings. The state has remained among the top states in per capita investment since the tech boom, although it did dip below the national average in 2006.

Accounting for population, Texas ranks considerably lower in per capita dollars than in total investment. Last year, the state had the third largest share among states of venture capital dollars, but ranked 18th in per capita investment. Other states with larger populations, like Florida and New York also had poorer showing on the per capita list. Taking population into consideration, however, did little to improve the standing of smaller states with little investment. North Dakota, Wyoming, Arkansas, Alaska and Nebraska occupied the bottom spots on both lists for 2007.

Equity Intensity Measured by Number of Deals
The data for deals per one million residents is similar to dollars per capita, with a few exceptions. Vermont consistently ranked much higher based on its annual number of deals vs. its total dollars received. For instance, in 2007, Vermont ranked 32nd in per capita investment but eighth in deals relative to population. This shift reflects the prevalence of much smaller deals in the state compared to the national average deal size. In 2007, Vermont’s average deal was $873,775; for the U.S. as a whole last year, the figure is nearly nine times higher at approximately $8 million.

The impact of looking at per capita deals rather than dollars can work in reverse on a state’s performance, as well. In 2007, for example, Kentucky ranked 22nd in per capita investment, but ranked 40th in deals per million residents. Average deal size in the Commonwealth was well over the national average at more than $15 million that year, although that figure was unusually high for the state.

SSTI will take a closer look at average deal size and other aspects of venture capital in the coming months.

Explore the Dashboard on Your Own
State and national per capita figures are now available on the profile pages of the SSTI Venture Capital Dashboard for all 50 states (plus DC and Puerto Rico). These provide data from 1995 to 2007 on total venture capital investment and deals, as well as national share and now per capita figures for each. Investment information has been derived with permission from the PricewaterhouseCoopers/National Venture Capital Association MoneyTreeTM Report with data from Thomson Financial. The population data has been drawn from the U.S. Census Bureau's Annual Population Estimates.


Is VC Becoming More or Less Concentrated Among States? SSTI Gives Readers Closer Look at the Data

With U.S. venture capital (VC) investment reaching its highest level since 2000, many are excited about the potential growth of investments in states that feel they have been unnoticed historically by the national VC economy. In the March 19, 2008 Digest, SSTI covered analysis from the National Venture Capital Association (NVCA) and PricewaterhouseCoopers that highlighted the five U.S. regions that have experienced the greatest growth since 1997. These regions, including the state of New Mexico and Pittsburgh metro area, have posted remarkable gains.

Others, looking at the data from different perspectives, disagreed with the NVCA conclusion and argued national trends do not appear to be especially favorable to non-traditional venture regions or select states.

Understanding trends in the VC industry from various angles is important to ensure state policymakers propose and support the most appropriate interventions for the specific goals to be accomplished. In some cases, no public intervention may be necessary. In others, perhaps programs should be targeted to specific sectors or geographic areas. In still other cases, broad policies may seem required.

The March 19 Digest article tried to present a balanced view of both arguments for several reasons. First, reporting errors, omissions and the quirks of individual deals and can paint a distorted picture of overall patterns when viewed in isolation or in single year “snap shots.” Also, rapid growth in the national VC industry as a whole or in certain regional markets could mask trends on another scale such as the state level. Finally, the number of dollars invested in a state is important, but as an increasing number of firms turn to later-stage, high dollar investments, early-stage companies may still be left without access to private equity financing.

The SSTI State Venture Capital Dashboard
To make a case for whether or not venture capital is more or less concentrated, one needs to look at the trends in the data over time and through several lenses. As an aid for everyone in this effort, SSTI has developed a new web tool designed to help academics and practitioners look at the level and distribution of U.S. VC investment since 1997. The SSTI State Venture Capital Dashboard provides 52 profiles (50 states plus the District of Columbia and Puerto Rico) connected by a simple interface that will allow users to easily navigate to state investment data. Users can view state investment levels, deal flow, and the share of overall U.S. investment received by each state on the basis of annual and quarterly reporting. This information has been derived with permission from the PricewaterhouseCoopers/National Venture Capital Association MoneyTreeTM Report with data from Thomson Financial.

Using State Share of Total U.S. Investment to Facilitate Comparisons
VC investment experienced remarkable variance over the ten years, most notably with the exuberance of 2000 and 2001 and the post dot-com crash lows immediately following. That variance presents challenges for studying trends among states. To overcome this, SSTI looked at changes in each state’s share of the total U.S. investment over the years.

Using state share of total VC investment as a standardizing measure, however, has its own drawbacks when looking the venture capital industry. For example, it presumes that all VC is the same, or, in other words, that any deal could take place anywhere but just happens to occur in one particular place over another. A second presumption is that there have been no changes in the types of deals made or the preferences of investors for certain “hot” industries or sectors.

A more rigorous model is required to really understand the nature and differences of VC investment among states. Since the question is whether VC is more or less concentrated geographically, however, share of total provides a good launching point.

The California Phenomenon/Problem
On the national, 50-state level, the most striking trend in venture capital distribution over the past 12 years has been the increasing prominence of California. As George Lipper noted for the National Association of Seed and Venture Funds (NASVF), California claimed about 40 percent of national venture investment in 1995, a figure which had grown to about 47 percent by the end of 2007. Second-place Massachusetts captured almost 12 percent of the total pot last year. While approximately only one-fourth of California’s investment, Massachusetts does significantly outdistance the other states; third, fourth and fifth places come in between four and five percent. The balance of the top ten states were around two and three percent each in 2007.

The data clearly shows the Golden State has been consolidating its dominant position in the market over the past few years, dramatically skewing the data about each state's share of venture investment. So what to do about California in comparisons? And should California, as such an obvious outlier, even be included in the comparisons?

One cannot argue that California is capturing “more than its share” of venture capital. The issue is not one of fairness, as money follows the deals VC firms believe will yield the best returns for their investors. There may, however, be good deals that go lacking for funds in other areas of the country.

Since many state and local TBED initiatives are build on the premise that access to early-stage, risk capital is critical for growing technology-related companies, seeing positive trends in growth for venture capital invested within a state is a useful indicator to monitor or adjust public policy interventions. Removing California from the analysis, makes it easier to see the trends in the rest of the states.

In 1995, the top ten states for venture capital investment, sans California, were respectively, Massachusetts, Texas, Colorado, Washington, Virginia, New York, New Jersey, Florida, North Carolina and Illinois. During the past 12 years several states changed relative rankings in the top ten list. In addition, Pennsylvania and Maryland moved up to join the top ten; Virginia and Illinois dropped out.

To address the question of whether venture capital has become more concentrated, SSTI developed a graph comparing the shares of the top ten states, after California, in 2007 back through to 1995. The graph shows the share of venture capital activity in these states has gradually grown over the period, beginning at 64 percent in 1995 and climbing to 72 percent by 2007.

Two conclusions seem to be apparent:

  • Any increased concentration of total VC activity is being borne by above average growth of California’s investments.
  • Throughout the rest of the country, though the overall dollars invested have grown substantially, there has been a less pronounced increase in the percentage of venture investment concentrated in the top states, at least at the state level.

If these conclusions are correct, then it would seem prudent to omit California from future investigations into the geographic distribution of investment. They also suggest that share of U.S. venture investments is not the most useful or accurate measure for evaluating the effectiveness of programs intended to increase a state’s risk equity activity.

Right click here to download a visualization of the percent of non-California U.S. venture activity experienced by each state since 1995. The chart provides little evidence that the US venture capital market is becoming more or less concentrated around a few states.

SSTI will take a closer look at the distribution of venture capital deals and the stage of those deals in a future issue, but in the total number of deals, California's position appears to be dominant as well. Between 1995 and 2007, the state's share of national deals crept from 36 to 41 percent.