Geographic funding breakdowns have long been a staple of startup coverage. How Much Have Silicon Valley Companies Raised? What about the Midwest? Or how about that burgeoning Florida scene?
Until a few years ago, this seemed like a sensible lens to look at data. Employees from seed to mid-stage startups usually worked at headquarters. Companies that received VC funding generally spent much of the scaling in their hometown.
However, since the pandemic, this kind of geographic calculus is no longer true. Instead, there is a breakdown by industry. Software startups usually operate completely or largely remotely. Companies with physical infrastructure are usually on site.
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With this shift in mind, we’ve been looking for a different kind of geographic finance analysis: one that separates companies into sectors that work remotely and those that burden more infrastructure. We generally refer to them as “non-software startups” and “software startups.”
We broke down this admittedly shaky dataset 1 by state to see which places lead in attracting the kind of startups that tend to rely on manufacturing facilities, labs, power plants, and other physical infrastructure. We then compared total software funding for the same states.
Below is a breakdown of the numbers for the top 27 U.S. venture finance states for the first seven months of the year:
So what do the numbers tell us? Here are some of the more intriguing findings:
1. Non-software startups dominate in Texas, Massachusetts, and these other states: Of the six states that attract the lion’s share of startup funding, Texas and Massachusetts were the only two in which non-software companies raised much more money than software companies.
For Massachusetts, an easy explanation is the historic strength of the Boston area in biotech, which accounts for the majority of the largest non-software rounds this year. Other sectors that made big headlines include energy and agtech.
Texas, known as a cost-competitive business location with a strong base for tech talent and room to grow, seems like a natural choice for infrastructure-heavy startups. So it’s not entirely surprising to see many of them choose the Lone Star State. Some of the bigger recipients of non-software funding this year include The Boring Company, Firefly Aerospace and Infinitum Electric.
Other states where non-software deals attracted a clear majority of venture capital include Illinois, Ohio, Arizona, Minnesota, Tennessee, Connecticut and Vermont.
2. Software Startups Dominate in New York, Florida, Georgia, and Utah: A few states also stand out as places where digital startups tend to congregate.
New York City’s prominence as a financial center is evident in the state’s startup investment. The biggest recipients of software funding this year are Chainalysis, a blockchain analytics provider, Jeeves, an expense management platform, and Policygenius, an insurtech startup.
Meanwhile, in two southeastern states, Florida and Georgia, more than two-thirds of startup funding this year also went to software companies. And Utah, known as a major hub for the SaaS space, also unsurprisingly outperformed on the software front.
3. California Dominates In Everything But Tends To Software: California, the top state for startup funding, is the top recipient of investment for both software and non-software startups.
However, the Golden State leans a bit towards the software side. Overall, software companies in the state have raised more than $50 billion in funding so far this year, compared to just over $33 billion for other startups.
4. Many States Are In The Middle: Not every state showed a clear bias toward digital or physical infrastructure-focused startups. States with a fairly balanced mix included
Colorado, Washington, Pennsylvania, North Carolina, Maryland and Virginia. Broadly speaking, these are places where we see SaaS and fintech, but also strong biotech activity.
5. The majority of venture capital funding goes to software startups: Software certainly seems to be eating up the venture capital industry. According to Crunchbase data, more than $88 billion went to US software companies so far this year, compared to more than $69 billion for the non-software startup category. And of course, the so-called non-software startups also depend on software. They fall into that category because they also rely on physical infrastructure beyond software.
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Non-Software Startup Financing Question in the US:
Illustration: Li-Anne Dias
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