“Shifting Landscapes” — Rise of the Rest’s 2023 Annual Report
Our second annual report is here, and it revisits the question initially raised in our late 2021 Beyond Silicon Valley Report: How is the geography of early-stage startup funding changing, and why? The headline: The Bay Area’s share of funding increased, resulting in Silicon Valley capturing more than 30% of funding again — but all signs point to the reversion being short-lived.
Let us be clear: 2022 was a roller coaster. There were economic headwinds (inflation, rising interest rates, the war in Ukraine, and supply chain disruptions, just to name a few), legislative tailwinds (the bipartisan passage of the Inflation Reduction Act and CHIPS & Science Act), new industries thrust into the mainstream (hello, AI), and new expectations for startups amid the upheaval. We believe a combination of these factors contributed to many investors falling back on old habits, resulting in a more than 5% increase in the Bay Area’s share of funding from 2021 to 2022.
As investors beating the geographic diversity drum, the obvious reaction might have been disappointment. Instead, the data was both reassuring and reinvigorating. A step back reveals a trendline slanted in our favor, and the likelihood of a less concentrated funding landscape in 2023 and beyond.
Our findings were also a reminder that the rise of the rest movement is a marathon, not a sprint. If other investors continue to retreat, we know that’s the best time to press ahead. But we feel strongly that the progress of the last decade to bring more awareness and capital to startups between the coasts has not been undone. Some reasons we’re optimistic: the VC funding pie is growing, demographic, migration, and place-based policy trends are on our side, and entrepreneurs across the country are only building momentum. In fact, despite a retreat in the share of funds flowing beyond Silicon Valley, 2022 still marked the decade’s second-highest funding volume for early-stage startups in states outside California, New York, and Massachusetts.
Our 2023 annual report, Shifting Landscapes, shares more on the evolving geography of early-stage startup funding, as well as how companies like Buildforce in Houston, Cambium Carbon in D.C., Mad Rabbit Tatoo in LA, Starday in Phoenix, and The Cool Down in Bend are proving innovation is not just possible, but actively happening beyond Silicon Valley. Founders of startups like these are the faces behind the numbers, and we’re excited to continue partnering with entrepreneurs who believe they’re building the right solution, in the right place.
