Local Venture Funding Is Growing, but Not the Share Funding LA Startups

Funding for Southern California startups has stalled as some of the region's biggest investors spread money outside the region.

In 2010, roughly one in every 10 startup dollars deployed nationally funded tech companies in Southern California. A decade later, that share has remained stubbornly static, even as the total sum invested in local startups ballooned from $4 billion in 2010 to $14 billion in 2019. That's according to a new report commissioned by Alliance for SoCal Innovation, a nonprofit advocating for the local tech scene.

"The good news is the pie has gotten bigger, but our slice of it has stayed more or less the same," said Andy Wilson, the executive director of the Alliance.

A major reason why the share has not budged is that most local startups are still in their infancy, raising smaller rounds. That brings down total investment dollars. Southern California startups raising Series B or later funding accounts for 64% of total investment, compared to 68% for New York and 80% for the Bay Area.

"We really haven't done particularly well in late-stage funding," Wilson said.

The data — which encompasses San Diego, Orange County and L.A. — was compiled late last year by Boston Consulting Group and is now being made public.

It also found fewer venture dollars are staying local. In 2013, about 30% of dollars stayed in Southern California versus fewer than 10% last year, a direct consequence of firms like B Capital, Fifth Wall, and Sinai Ventures raising larger funds that are geographically agnostic.

"These bigger guys don't really seem to be focused on taking advantage of the local market opportunity," Wilson said.

Upfront Ventures has invested in the most local companies in the last three years with 58, followed by Greycroft, which has backed 45 startups. Of VCs not based here, NEA and Sequoia Capital led the way with 24 and 23 startups, respectively.

The report counted 3,750 startups in Southern California, which is about half the number in the Bay Area, and fewer than New York's 5,100 startups.

Despite a reputation for consumer tech, Southern California is the most well-diversified across industries among the country's top three innovation hubs, with an even split with software and tech, health and media companies.

"Most of the world thinks of us as king of the consumer Internet and media – Netflix and Snapchat – but SpaceX is here and Relativity Space and all the electric car companies are here," said Wilson.