This year has shaken up venture capital, turning a hot early start to 2020 into a glacial period permeated with fear during the early days of COVID-19. That ice quickly melted as venture capitalists discovered that demand for software and other services that startups provide was accelerating, pushing many young tech companies back into growth mode, and investors back into the check-writing arena.
Boston has been an exemplar of the trend, with early pandemic caution dissolving into rapid-fire dealmaking as summer rolled into fall.
We collated new data that underscores the trend, showing that Boston’s third quarter looks very solid compared to its peer groups, and leads greater New England’s share of American venture capital higher during the three-month period.
For our October look at Boston and its startup scene, let’s get into the data and then understand how a new cohort of founders is cropping up among the city’s educational network.
A strong Q3, a strong 2020
Boston’s third quarter was strong, effectively matching the capital raised in New York City during the three-month period. As we head into the fourth quarter, it appears that the silver medal in American startup ecosystems is up for grabs based on what happens in Q4.
Boston could start 2021 as the number-two place to raise venture capital in the country. Or New York City could pip it at the finish line. Let’s check the numbers.
According to PitchBook data shared with TechCrunch, the metro Boston area raised $4.34 billion in venture capital during the third quarter. New York City and its metro area managed $4.45 billion during the same time period, an effective tie. Los Angeles and its own metro area managed just $3.90 billion.
In 2020 the numbers tilt in Boston’s favor, with the city and surrounding area collecting $12.83 billion in venture capital. New York City came in second through Q3, with $12.30 billion in venture capital. Los Angeles was a distant third at $8.66 billion for the year through Q3.
Broadening our lens some, we can see Boston’s strong year helping change the results of its region, allowing New England to take a bigger bite of aggregate U.S. venture capital results. PitchBook’s Q3 2020 venture capital report includes charting on the regional breakdown of venture capital data in the third quarter. The New England bloc, which, let’s be clear, is grounded in Boston’s own results, did well.
In Q3 2019, New England drove 9.3% of U.S. venture deals, and 10.3% of U.S. venture dollars. In Q3 2020, those numbers were 9.3% of U.S. venture deals, and 12.7% of U.S. venture dollars. That’s a material change, and good news for Boston — gaining share during a boom is impressive.
Top investors predict what’s ahead for Boston’s VC scene in Q1
What’s driving the solid results for Boston and its surrounding states? There’s no one answer, but TechCrunch kept its ears to the ground, and here’s some flavor on what’s up in the city.
What’s driving Boston forward
While the venture capital scene is active, a new generation of founders is coalescing. For example, Harvard Innovation Labs (iLab) has seen unprecedented growth in student-led startups. Executive director Matt Segneri said 394 teams have joined its fall venture program, the largest ever cohort for the iLab student program.
Last fall, he saw closer to 175 to 200 teams. Segneri said the coronavirus has made the world’s most complex challenges, such as racial inequity and climate change, top of mind.
“It puts more generally explosive growth in the idea of leaning into an early-stage venture,” Segneri said. Note that Harvard announced that it would move all classes online, which spurred over 20% of undergraduates to not enroll for the fall semester. The rise in startups despite the drop in enrollment suggests that students who have opted to stay in school are craving a more entrepreneurial experience.
Harvard isn’t a one-off example of Boston’s strength, added Segneri.
“The power of proximity is real,” he said. “But at the same time, we’ve had folks from 131 different nationalities come and study here and build their ventures here. In many cases, they choose to stay and launch in Boston, but in other cases they spread out across the globe and that’s the strength of what we build.”
In other words, Segneri doesn’t view Boston as a place where entrepreneurs need to stay in order to be successful. Instead, he sees the city’s strength as a “launchpad and touchstone” with global reach.
Even if part of Boston’s magic is partially its transience, today’s data show that businesses which do set up in the city are able to raise billions.
Later-stage rounds
Let’s end with a look at the biggest rounds for Boston in Q3. The results are diverse, with an expected concentration in biotech. The more interesting twist from Q3 is that we saw a number of heavy-weight investors not based in Boston appear to lead rounds.
Biofourmis raised a $100 million Series C to focus on digital therapeutics and patient-facing technology. Notably, the company was planning to raise a smaller round in the beginning of the year. Then, Biofourmis met with SoftBank and raised a larger round than expected, per Crunchbase News.
We also saw on-demand alcohol delivery platform Drizly raise a $50 million Series C led by Tiger Global. The cash was raised off of 350% growth in 2020, which makes sense as people continue to stay at home and avoid bars due to risk of transmission. Drizly also hit profitability and doubled its retail partners since January.
Finally, Indigo added $360 million to its $200 million Series G round to build a data platform for agriculture and farmer profitability. With the fundraise, Indigo added Moderna CEO Stéphane Bancel to its board and brought on Alaska Permanent Fund and Flagship Pioneering as investors.
More on Boston from TechCrunch in November.
Comment