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Wednesday, Feb 8, 2023
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V.C. Activity Tops $5 Billion

For two consecutive years, San Diego venture capital activity reached historic highs, roughly $2.5 billion was funneled into San Diego-based companies in 2019.

In 2020, that trend would continue — despite a global pandemic — doubling last year’s number and attracting more than $5 billion for both life science and fast-growing technology companies in the region.

The record shattering year was largely driven by “mega” venture investments including San Diego-based biotech Resilience’s $800 million round; self-driving trucking company TuSimple $350 million round; two $100 million rounds by tech startup Flock Freight and productivity software unicorn ClickUp’s, among several others.

Mike Krenn, president and CEO of Connect w/ San Diego Venture Group said he was impressed with the numbers given the unpredictable environment.

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“We got off to a great start both from a technology and life science perspective. Overall balance and numbers were great across the board from early-stage to late-stage,” said Krenn. “In retrospect, I would not have predicted we would have crushed last year’s numbers as much as we did. Then when you factor in COVID, we still crushed last year’s numbers, it’s pretty phenomenal for the region.”

Tech Renaissance

In San Diego, typically science rules supreme, while the software industry finds itself often in the backseat in terms of raising dollars from institutional investors.

Coming a long way, the local tech scene is beginning to turn more heads of venture capital firms, as new players are coalescing into a hub and providing lucrative opportunities.

Eric Otterson, who’s been entrenched in the local startup scene for the past two decades as managing director of Silicon Valley Bank, said the latest record of venture numbers highlights “a renaissance in technology,” in the city.

“I promoted a ‘San Diego tech renaissance’ in 2017 and 2018, only to feel that had me eating my words with its weaker showing of roughly $1 billion in 2019. However, 2020 came in with a bang and kept firing despite the pandemic, to roughly $1.4 billion,” said Otterson.

In the first quarter, Solana Beach-based Flock Freight closed a $50 million round, kicking the year off with a series of major follow up announcements. Shortly after, Downtown-based Cloudbeds raised a $82 million round becoming a growing player in the hospitality sector.

In the second quarter Ecwid, a long-time San Diego e-commerce company, picked up $42 million from PeakSpan, which also invested in five other local companies. Closing the first half of the year, San Diego-based productivity software company Seismic nabbed a $92 million investment, now valued at more than $1 billion.

“The last few months of 2020, we saw the rise of the San Francisco transplant with both ClickUp and Kandji newly arriving to San Diego. We also saw repeat entrepreneurs like Gretel.ai and others receive funding in 2020. And finally, we saw GoSite raise additional funding by San Diego-based firms Longley Capital and Ankona.”

“It really is a signal that we are still climbing as a preferred location for workforce intellect, company culture, growth, lifestyle and valuation,” he added.

Life Sciences Dominated

In the first three quarters, San Diego life sciences companies brought it a total of more than $1.8 billion in venture funding, with the largest acquisition by VelosBio (acquired for $2.75 billion by Merck).

In addition, San Diego had a total of seven life sciences companies join the public markets through U.S. exchanges with Maravai LifeSciences most recently raising a $1.62 billion IPO back in November.

Throughout 2020, biotech and pharmaceutical startups favored fairly well, other sectors including fintech, ed-tech and telemedicine firms also have been able to raise capital.

Neal Bloom, chief executive officer at Rising Tide Partners, said the pandemic highlighted the profound need for medical innovation, adding that technology companies were able to capitalize on digitization due to growing remote work.

“In total, we saw larger dollar amounts of funds than most of our recent years. While our biotech dominated, we are truly seeing our late stage tech come into its own,” said Bloom. “We saw everything from new unicorns such as ClickUp and brand name VCs investing in San Diego. This is a great continued trend.”

Looking forward, life sciences valuations will remain high through 2021, especially for biopharmaceutical companies.

Female Investment Trails

Despite the record investment numbers, venture dollars raised by female founders continue to trail behind.

Allison Pettine, president of Crescent Ridge Partners who launched her fund providing seed capital to early stage startups in 2012, said female founders seeking to grow their startups are still struggling to raise capital

“In San Diego, there is growing support for women entrepreneurs. We have the San Diego Angel conference which supports a lot of female founders. Also, regionally there’s a greater focus on supporting females becoming entrepreneurs,” said Pettine. “That being said, I don’t think the efforts are matching the dollars, just yet.”

Pettine emphasized that San Diego continues to be a region of interest for a lot of investors from across the nation. She also noted that multi-billion venture activity has yet to spill over to more women founders, which historically receive less than 25% of the money invested into the region.

This is mainly due to the nature of early-stage investing, said Pettine, as investors typically write smaller checks for pre-seed and early-stage startups, especially for women.

In 2019, across the U.S. roughly $18.3 billion was invested in venture capital deals in female founded companies, up from $16 billion and fewer deals in 2018, according to the National Venture Capital Association (NVCA).

Nationwide, venture capital investment has remained resilient despite the pandemic and economic volatility. In total, roughly $36.5 billion was raised in the third quarter alone of 2020, Q4 numbers are yet to fully come in. 

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