In 2007, for the first time Southern California passed the Boston area as the 2nd largest venture capital market in the country. According to Dow Jones Venture One, Southern California saw a 12 percent increase in amount of funded deals - to $3.8 billion. Venture funding in general was up 8 percent in 2007 - and VC's raised over $35 billion in fresh capital from limited partners to invest.
A few takeaways:
- While the 2007 funding numbers for Boston and Los Angeles are still way behind the Bay Area's $9.9 billion in funding in 2007, it is encouraging to see VC funding continue to be more diversified around the country versus being so Bay Area centric.
- The early stage, private company equity markets are probably the most insulated arena in the investment world these days. Other than psychologically, the fallout from the real estate credit crunch and generally soft economic numbers on a macro level have not effected the consistent, year-over-year uptick in VC funding.
- There is a move in private equity and venture capital investing back to more traditional startup and seed investing. Later stage investing remains extremely competitive, with a LOT of VC's chasing relatively few deals. Because a number of larger funds, simply because of fund size, find it diffiicult to invest in smaller deals (say less than $5 million), there is a move to these funds actually investing in startup and seed FUNDS to give them early stage and seed equity positions. This is encouraging for entrepreneurship.
- Having said this, raising money for a startup remains, as it always has been and probably always will, VERY, very challenging. Doable for sure, and more doable in these solid VC investment conditions, but still a complex, multi-faceted, and arduous process.