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Despite VC crash, Silicon Valley still leads startup economy

Attendees network at the Startup World Cup in Downtown San Francisco on Sept. 30. | Kevin V. Nguyen for The Standard | Source: Kevin V. Nguyen for The Standard

Despite an extremely rough quarter for the region’s startups, the San Francisco Bay Area remains the nation’s leading metro area for venture capital deals.

Startup investment during the quarter dropped precipitously, according to new regional data from PitchBook. Venture capital investment in U.S. startups dropped from $37.0 billion in 2023, less than half the $82.4 billion invested during the same period in 2022. And just over 1,000 startups were funded, down from more than 2,800 in 2022. 

Though the collapse of Silicon Valley Bank—the financial base for much of venture financing—cast a pall over the entire innovation economy, the upheaval arrived in March as first quarter was wrapping up. What’s next for venture investment is a concern for startups around the country.

One signal of trouble on the horizon in the startup sector is the low portion of “angel or seed” venture deals, says PitchBook. Though these initial rounds of capital awarded to the earliest startups usually account for about half of venture deals, angel financing only accounted for one-third of the first quarter 2023 total.

The slowdown in new startup capital will be a significant blow to San Francisco, Silicon Valley and the rest of the Bay Area accustomed to receiving fresh flows of innovation-driven investment.

San Francisco, Oakland and Silicon Valley accounted for $15.2 billion or 41% of the nation’s venture investments. And though deals activity is spreading across the country, the Bay Area continues to attract more startup funding than any other metro area of the U.S.

But the Bay Area’s standing in first quarter is showing several cracks. Though the VC investment dollars are substantial, the region’s share of the number of deals dropped to one-fifth for the third straight quarter, according to PitchBook.  

Another major caveat is the hulking $6.5 billion deal that flowed into Stripe just weeks ago, valuing the South San Francisco payment firm at $50 billion. Though these large deals help buoy a struggling investor climate, the deal’s value significantly lifted the Bay Area’s total investment to a high that won’t be easy to match in the coming quarters.

On the plus side for the local VC space, several of the region’s top deals during the first quarter were located in the city of San Francisco and were classified as “early stage” investments. A big handful were AI deals, as well, showing SF may yet have a bit of kick in her startup giddyap.