California has been the world's startup capital, with the Silicon Valley region serving as a global center for technology and innovation. California continues to rake in the maximum share of VC funding in the U.S. However, its dominance has slipped year-on-year. In Q1 2023, the state secured 40.7% of all VC capital deployed in the U.S., down from a 45% share across the entire 2022, per Carta. The downward trend has continued for the past few years causing VC funding share to decline consistently from the peak of 51% in both 2018 and 2019. The drop is certainly not a cause for concern for California as no other state was able to secure more than a 13% share of VC funding last year. However, there is a threat rising from the South that could eventually challenge the dominance of California. The state in question is Texas, which doubled its share of VC capital from 3.2% in 2022 to 7.2% in Q1 2023. Texas' rising prominence in the VC ecosystem underlines the "larger southern and eastern shift in capital raised," per Carta. The West region of the U.S. secured 51.2% of the total VC capital deployed, helped largely by California's dominance. However, the West region's share of funding contracted from 55% in 2022. Funding also contracted for the Midwest, dropping from 4.8% to 3.5%. On the other hand, the funding share increased in the other two territories, namely the South and Northeast. South's market share increased from 15.5% to 18.1%, while Northeast's market share increased from 24.5% to 26.8%.
The lower cost of living and tax advantage for individuals in Texas is attracting talent and corporations to the state. Per the U.S. Census Bureau, Texas became the fastest-growing state in the nation in 2022, joining the ranks of California as the only two states with a population greater than 30 million. Texas attracted more than 11% of new residents from California between July 2019 and July 2022. Corporations have also joined the migratory trend. Per Hoover Institution at Stanford University, out of 265 corporations that relocated their headquarters outside California, 114 moved to Texas. The strong migration is also helping the startup ecosystem in Texas, with Austin emerging as a new startup hub. Early-stage startups in Austin raked in $5B in VC funding in 2022. While funding was down compared to the record-setting total of $5.4B in 2021, the pullback was less severe than in several other cities. "The Austin region is home to a vibrant tech ecosystem, with a large cohort of rising stars and more than 25 unicorns," says Roland Peña, a senior vice president at the Austin Chamber and Opportunity Austin. Despite the positive shifts in favor of Texas, there is a long way to go before it can take on California in VC funding. However, with the recent uptick, it could challenge its nearest-placed rivals, Massachusetts and New York, which hold the second and third largest share of VC funding, raking in 12.7% and 12.3%, respectively. |
