Some VCs have been declaring that San Francisco is over, and now they have the numbers to prove it.
Despite record-breaking investment in the venture capital industry, the Bay Area saw a sharp decline in angel and seed deals in 2020, according to a report by Pitchbook and the National Venture Capital Association.
In 2020, San Francisco reached only 81.2% of the angel and seed deals it made in 2019. Although it still had more deals than any other city, it recorded a "a 10-year low in proportion of total deal count." This means, compared to other major cities, San Francisco was less dominant than it's been in the last decade.
It's easy to attribute this to the pandemic; however, the venture capital industry managed to invest over $150 billion this year for the first time ever. VCs weren't necessarily investing less — this newly-remote world just gave other cities a better chance to get in on the action.
This could be a told-you-so moment for VCs who have been championing an end to Silicon Valley's dominance in the startup world.
Founders Fund general partner Keith Rabois has been vocal about his move to Miami, insisting other VCs are doing the same.
"There are lots of people that have already moved that haven't been written about that are pretty high profile," Rabois told Insider, although he declined to say who. "Post-COVID, I think the concentration of talent has atrophied, perhaps permanently."
Similarly, prominent VCs like Palantir co-founder Joe Lonsdale left San Francisco and Opendoor co-founder J.D. Ross left the Bay Area for Austin, among a long list of other tech elites who went to other cities. Investors have cited San Francisco's taxes, tiny apartments, and homelessness issue as reasons for their departure.
Of course, Silicon Valley has been pronounced dead before, and it's managed to come back swinging. The city has been subject to many tech booms and busts over the decades and the pandemic may have simply ushered in another bust cycle.
"Everyone either thinks San Francisco is the center of the universe or it's dead," venture capitalist Ann Miura-Ko told tech journalist Eric Newcomer in his newsletter. "It's just super annoying because anyone who has been here for over one cycle knows it always comes back and it always also falls out of favor."
It's also worth noting the majority of deals were still made in the Bay Area, with a total of 2,503 completed deals. This was miles ahead of second place: the New York area with 1,500 deals.
A remote world, however, has certainly given other areas of the country a chance to thrive. Atlanta saw a 13.1% increase in angel and seed deals over 2019, completing nearly 100 angel and seed deals for the first time in over half a decade. Atlanta has been up-and-coming for awhile, landing at number eight on our list of cities outside of Silicon Valley to start your business, and launching startups like MailChimp and Kabbage.
Boston was the only other major city to show an increase in deals. Meanwhile, New York City, Chicago, and Los Angeles all experienced a decrease in deals — albeit not as drastic a drop as San Francisco.
Still, the report said we may be seeing the start of a long-term trend away from the Bay Area for startups, heralding 2020 as a "harbinger for investment trends to shift further outside of the region's venture hub."