How Northern California's Reality Distortion field is reflected in startup funding


The San Francisco Bay Area 1 can best be understood as a gigantic field for reality transformation. People live on top of earthquake errors. Many are billionaires; the rest hardly pay rent. It is always 60 degrees in a microclimate. And every week a multi-billion dollar company appears that sounds like a brainteaser, impossible risky, or both.

In the midst of all this, California is a mediocre to the last place for business friendliness. Nevertheless, three of the five most valuable American technology companies have their headquarters in Northern California. And although it seemed a terrible place to set up a production hub, the nation's most productive electric car manufacturer was not deterred.

The region's start-up culture is particularly singular, leading category leaders in industries (ride-hailing, e-cigarettes) that existed barely 10 years ago. No less than seven of the estimated ten most valuable American unicorns have their headquarters.

Can it persist? I hear many sensible arguments from sensible people about why Northern California is about to lose its entrepreneurial spirit compared to other places with lower taxes, a more pro-business environment, youthful talent, and so on. But Crunchbase data continues to show robust investments for the Bay Area in various stages and sectors. Personally, I think you should just accept that it has never been wise to be Northern California's specialty.

So, for all the fans and haters of the San Francisco Bay Area who are here, here is a bit of data to put the recent sector performance of the region in perspective. We look at financing, exit and valuation data for the past year that support the idea that the distorsion field is alive.

Secure startups from really large financing rounds

In the past year we have written a lot about the worldwide emergence of supergiant financing rounds of $ 100 million and more. In the United States we have seen these huge rounds all over the region, but nowhere are they as numerous and concentrated as Northern California.

In 2018, startups in the San Francisco Bay Area raised $ 22.4 billion in 87 super-rich financing rounds. The rest of the United States, with $ 24.9 billion in super-funding in 103 rounds, barely managed to outperform that total.

There is no dominant sector for supergiant financing rounds in Northern California. However, we notice a preference for companies that develop technologies that focus on two very broad themes: reducing the need for human labor and providing people with faster and easier ways to get what they want.

We have compiled a list of the 12 largest Bay Area venture rounds since 2018. Some of the more prominent companies in the region that secure big rounds are Niantic developer of augmented reality, Instacart delivery service for groceries, robot-made pizza delivery service Zume , scooter-up start Lime and payment technology provider Stripe.

Eliminate older startups that support huge valuations

Another area in which Northern California stands out is the concentration of super valuable unicorns.

The Bay Area is home to seven of the ten most valuable private companies with private support: Uber, Airbnb, Palantir, Stripe, Juul, Pinterest and Lyft. All in all, they represent a collective private valuation of more than $ 200 billion. Of these, all are except Palantir headquarters in San Francisco itself, a documented unicorn production mill.

With some of the top bay unicorns that are expected to be released in the coming quarters, investors are also hopeful that they will also see some big exits. Uber and Lyft have already confidentially filed an application for IPOs, while Pinterest and Slack reportedly will file almost paperwork.

In the meantime, let us not forget which big exits have happened in the past year. On the M & A front, by far the largest, was the purchase of the San Francisco-based software development platform GitHub of $ 7.3 billion. As far as IPOs are concerned, Bay Area-based software a unicorns Dropbox, DocuSign, Pivotal and Zuora all attracted the public last year and managed to support multi-billion dollar market capitalization.

Yet another kind of exit came from e-cigarette pioneer Juul, who last month sold a 35 percent share of tobacco giant Altria for $ 12.8 billion. Although it is not a complete acquisition, it is more money than all US M & A deals made by the US in the past year.

Early and unusual areas thrive

In addition to generating many unicorns, the San Francisco Bay Area has maintained its huge lead in American metropolises in seed financing and at an early stage.

The region attracted $ 1.2 billion in reported seed funding in 2018, spanning more than 600 known rounds of $ 100,000 or more. That is more than 30 percent of the total reported seed investment for the entire United States for rounds of that size.

The Bay Area project's start-up generation machine also succeeds in producing highly valued companies in areas where the region is not known as a talent bed.

Take AllBirds, a maker of trendy wool shoes that last year in a round of $ 50 million have drawn. San Francisco, where the company is based and started up, is not very well known for the entrepreneurship of shoes. Or look at Bolt Threads, with headquarters in nearby Emeryville, California, which has raised more than $ 200 million to develop high-quality, environmentally-friendly fabrics.

Of course not all those unconventional bets are good. A well-known example is Juicero, the failed developer of a press cold press system, which raised almost $ 120 million to finish the following reports, his expensive machines did not do much.

Large exits and large flops

This brings us to our next point about the tireless start-up machine of the Bay Area. While the region has the biggest success stories, it is also home to the most notorious flops of the venture industry.

After all, Silicon Valley is the location that brought us Theranos, the fallen blood-testing unicorn that once boasted a $ 10 billion valuation before the long history of fraudulent practices came to light. The company Palo Alto officially closed its doors in September.

Other major flops of the past year included San Francisco-based Munchery, the delivery service that stopped this week after raising $ 125 million, and Shyp, a package delivery and delivery service that folded after it earned $ 60 million. Drone upstart Airware folded late last year after raising $ 118 million.

So, finally, there are plenty of reasons to write off the Bay Area as a startup hub that is over. Investors attach great value to pie-in-the-sky companies that lose tons of money, traffic is annoying and there are no affordable properties.

And yet the entrepreneur motor of the region continues to drag along, and for now no other American city is coming close to overtaking.