The top three regions over the past several years – San Francisco, New York and Boston – continued to lead the way in 2021, accounting for nearly 70% of the total VC activity in Q4. The San Francisco Bay Area, which includes Silicon Valley, recorded more VC activity last year than we saw in all of 2000, which was the height of the dot-com era. In addition, the San Francisco Bay Area nearly doubled what it raised in 2020, breaking the $100 billion barrier for the first time. Half of the top 10 deals nationally from 2021 were based in the Bay Area, driven largely by IT. Overall, the IT sector accounted for $46 billion in activity, which more than doubled last year. Business and financial services followed with $30 billion, while health care ranked third at $16 billion.
In 2021, New York pulled away from Boston to emerge as the second largest hub for VC activity in the US. New York had a monster year in both deal and dollar volume, recording $53 billion, over 2.5 times last year’s total. Financial services led the way, followed by software and health care services. On a quarterly basis, the New York area was up 7% and raised $15 billion in Q4.
Boston recorded $35 billion in VC activity, largely driven by health care, IT and consumer services. Boston also doubled the amount from 2020 and finished the year up nearly 33% quarter over quarter.
Among other cities, Los Angeles also enjoyed significant year-over-year growth from 2020, recording nearly $15 billion in venture-backed funding last year. The growth was largely in business and financial services, consumer services, and industrial goods and materials, which was fueled by large aerospace deals.
What does 2022 have in store for us?
While we expect to see continued strength in the VC market, it’s unlikely that we will see the market continue to grow at the rates we saw in 2021. A record amount of dry capital entered the market last year, but we are starting to hear rumblings over inflation, increased public market volatility and potential geopolitical concerns that could provide cover for a moderation of investment activity.
Of course, projections for the future always carry some risk. Last year, I was correct when I said we were poised to continue our bull run in 2021. However, two years ago I didn’t think the VC market would break $100 billion.
Still, with $300 billion-plus invested, we are truly testing the limits of gravity. Even if we saw a pullback of 10% or 15% next quarter, that would still represent the largest quarterly investment before the pandemic. Regardless of what happens, most likely we will still see significant capital flows that would have been thought of as impossible four or five years ago.
I don’t think it’s realistic to expect continued double- or triple-digit growth in venture funding and we should not be surprised, or alarmed, if we have a down quarter or year. Right now, we are still in a pretty exuberant mode — we’ve been exposed to COVID-19 and continue to see record activity. Unless something even more drastic occurs with the variant, I don’t anticipate VCs hitting the pause button any time soon.