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Where Have All the VCs Gone?

Venture capitalists still love Silicon Valley, but new data shows they're looking elsewhere more often for startups to work with.
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If you're an entrepreneur trying to raise serious money for your business, some important new data might buoy your hopes, especially if you work outside Silicon Valley. 

A Seattle-based research firm called PitchBook says that while Silicon Valley and the Bay Area still dominate the venture capital industry, a number of other areas--both in the United States and overseas--have shown extraordinary growth.

"We are seeing a lot of the bigger VC firms starting to raise more internationally focused funds," Peter Fogel, a senior analyst at PitchBook, told Inc.. "Also, we think that increasingly easy connectivity is making it easier for investors to source deals and manage international portfolios."

Here's what hasn't changed: Fully 27 percent of the dollars that big VC firms invested in 2013 went to companies in places like Burlingame, Menlo Park, and Palo Alto, and the total dollar amount invested there--$13.42 billion last year--is up 7.5 percent from the previous year. At the same time, however, the total number of deals in that region actually fell by 11 percent, meaning there are fewer deals, but the ones that did come together involved more money.

Dig a little deeper into the data, which PitchBook shared with Inc., however, and some interesting trends begin to emerge. Here are a few of the potential winners in the venture capital game.

Europe

At the outset, Europe is on a tear. In fact, venture capital firms invested in a total of 1,422 European deals, which significantly exceeded dealflow in Silicon Valley (1,225). Again, the total amount of money involved in Silicon Valley investments dwarfs Europe, but deal flow in Europe has risen steadily and is up nearly 100 percent since 2009. "The European venture capital community is maturing and there might be a certain level of market saturation on the U.S. side of things," Fogel says.

Silicon Valley

The New York City startup scene saw fewer deals last year--418, down from 485 the year before--but don't let that statistic throw you off. When looking at the total amount of money involved, it's striking: $3.29 billion, up from $2.19 billion a year before. These numbers are smaller compared with Silicon Valley, but compare them to 2009, when New York City accounted for just 195 deals and $963 million. Even though the number of deals fell, they're still up more than 100 percent compared with 2009.

Canada

Last summer, the Canadian government made headlines by running billboards in Silicon Valley urging entrepreneurs with immigration problems to try starting their businesses north of the border instead. Whether that helped remains to be seen, but Canada is drawing a lot more investments. Canadian companies raised $1.12 billion in venture capital during 2013, which was a huge jump over the $897 million they raised the year before. The number of deals involved--222--was up just slightly from the year before, and way up from the 75 that closed in 2009.

Israel

Much has been written about the startup scene in Israel, but the numbers here are still striking. Last year VCs invested in 160 deals in Israel, up from 113 a year before and up drastically from just 55 in 2009. The total amounts invested have risen sharply year-over-year as well, from a hair under $300 million in 2009 to $646 million last year.

The data for other regions tell a more complicated story. Washington D.C., for example, saw its number of deals drop but the total money involved rise, while metros like Chicago and San Diego saw huge drops (although they're still way up since 2009).

Here's the bottom line: Silicon Valley still dominates, but it might not be quite as necessary to relocate your company there if you want to have a shot at professional investors willing to invest multiple millions in your business. 

It's a new year and I'm in a new city. Now this column needs a new name. Want to help me choose? Vote here! 

Last updated: Jan 9, 2014

BILL MURPHY JR. | Columnist

Bill Murphy Jr. is a journalist, ghostwriter, and entrepreneur. He is the author of Breakthrough Entrepreneurship (with Jon Burgstone) and is a former reporter for The Washington Post.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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