A sign of a thriving startup ecosystem is growing interest from investors in the market. On this measure, NY fares well but Massachusetts looks lackluster. At the later stages, it appears Mass may be suffering from a Series D Crunch.

Our friend Shai Goldman over at SVB tweeted this out a few days ago:

A lot of our past research has been focused on financing and exit activity in the top startup hubs, but this tweet got us thinking about how investor interest is actually a useful indicator of how healthy a startup ecosystem is (or is not). As we’ve been documenting for a while with data, NY has overtaken Massachusetts when it comes to tech VC deals and VC funding (see herehereherehere and here).

But how have both markets fared in terms of the number of investors in each ecosystem, and their ability to attract new investors into the market? In essence, although NY’s tech scene has gained a lot and sentiment is high, is Massachusetts still attracting tech VCs at the same rate and just keeping a lower profile?

Unfortunately, for Massachusetts, the data does not look good.  While Massachusetts is undoubtedly a great place to be for healthcare investors, tech VC interest in the state seems to be growing only modestly and actually declining at certain stages. Using CB Insights venture capital data, we identified all VC investors (just pure-play VCs – not corporate VCs) who have participated in funding rounds raised by tech companies headquartered in Massachusetts and New York between 2010 and 2013. (Note: The tech sector includes the internet, mobile & telecommunications, software, computer hardware & services, and the chips & semis industries). At a high level, the number of VCs active in New York easily trumps those active in Mass. Between 2010 and 2013, 1,120 venture-backed funding rounds were raised by tech companies headquartered in New York while Massachusetts tech firms raised 762 VC-backed rounds. The number of unique VC investors investing in the Mass. tech space was 329, a much smaller number than the 434 VCs in New York. Not only is deal activity stronger in New York, but the number of active investors is also higher. To gauge how investor interest in these two states has changed over time, this aggregate data was broken down by year. Some interesting temporal trends emerged here. (Note: The markers in the following charts are the actual data points while solid lines only represents the general linear trend over the past four years.) In 2010, 182 and 158 VCs were active in New York in Massachusetts respectively. So New York’s VC count was already higher than Massachusetts in 2010 but the difference was fairly small (15%). In 2013, the number of investors in New York grew to 272 while it barely increased to 177 in Massachusetts – the gap has widened with Massachusetts’ investor staying quite flat while NY has grown markedly. Overall, the net growth in number of VCs active in Massachusetts (from 2010 to 2013) has only been 12%, while this same figure stands at a much higher 49% for New York. 

To gain a deeper insight into where the VC numbers in Mass. are lagging, we further broke this data down by the stage of investment – early (Seed and Series A), mid (Series B and C), and late (Series D and beyond).  The following charts show the growth in investor count for early & mid-stage rounds respectively in Mass. and New York. The trends for both early and mid-stage investor counts show NY outpacing Massachusetts.

Specifically, the number of investors in early stage rounds has grown in both Massachusetts and New York – however, New York has still seen a much steeper net growth of 76% (100 to 176) as compared to Massachusetts’ 58% (65 to 103).  Add to this that NY has grown faster on an already larger base of VC investors. On graphing the unique investors in mid-stage rounds, the growth over time is not as steep, but the story remains the same. The trend lines for VC count in both states are much flatter than those for the early-stage rounds. While there is some volatility in the number of investors from year to year for both New York and Massachusetts, New York’s mid-stage investor count is still trending up with a 52% (86 in 2010 to 131 in 2013) net increase since 2010. On the other hand, the mid-stage VC count in Massachusetts is fairly flat with an increase of only 1% (78 in 2010 and 79 in 2013) in the same time frame. The last graph – that of the number of unique VCs who invested in late-stage rounds – perhaps provides the most insight into Massachusetts’ exit pipeline.  (Note: the vertical scale of this graph is different from the last two in order to clearly show the trend) While a slight flattening of the investor count trend line can be expected as we move from early-stage to late-stage because of the nature of the funding funnel, the following graph shows that the problem is worse than just slow growth. The number of tech VC investors in Massachusetts who participate in late-stage rounds is, in fact, on the decline rather than increasing. While in New York this number has seen a net increase of 75%, in Massachusetts it has declined by 25% since 2010. Perhaps Massachusetts is suffering from a Series D Crunch?

Or maybe NY and Massachusetts are both irrelevant and Silicon Valley is the only market that matters.

Additional Note:  Dan Primack of Fortune floated another theory today that might be a driver of tepid investor interest in Massachusetts – the national tech media.