As the data proves again and again, Silicon Valley dominates every other region by a huge margin when it comes to tech VC activity. Our earlier piece on why Silicon Valley is the only relevant market for venture capital ruffled a few feathers among folks who believe that the growth of VC financing in other regions constitutes a significant dent in Silicon Valley’s dominance. As our prior research briefs only looked at more recent timeframes (2012-2013), we wanted to look back a bit further to see if Silicon Valley is slipping and if a next Silicon Valley is really emerging or if this is more industry and pundit bloviating.
The reality based on the data, however, is that Silicon Valley has maintained its dominance of the largest exits and is unique in its ability to breed venture capital Black Swans – the massive outsized hits that (most) venture capitalists require to make LPs money but which most are not very good at generating.
Using CB Insights venture capital data, we identified the 50 largest VC-backed tech exits (by exit valuation) that occurred each year since 2007. We then looked at Silicon Valley and the other few regions with the most top exits – Massachusetts, SoCal, New York, and Texas – to see how trends there stacked up against the Goliath that is Silicon Valley.
The following charts show the Silicon Valley’s contribution to the top 50 exits and their aggregate valuations each year respectively. Silicon Valley does, in fact, consistently provide the most top exits each year. Barring 2008, at least 42% (or 21) of the top 50 exits each year since 2007 have been based in Silicon Valley. 2012 saw the highest ever share (a whopping 60% or 30) of the top exits come from Silicon Valley. In fact, Silicon Valley’s exit share has been growing since 2010. The number is a little lower in 2013 YTD but within historical ranges.
In terms of valuation, Silicon Valley’s domination over its regional peers has clearly been increasing over the years. 2012 was a bit of an outlier for SIlicon Valley and the VC industry in general owing to Facebook’s mega-exit via IPO. However, Silicon Valley’s share of the Top 50 aggregate exit valuation has held and on backs of big IPOs like Twitter, FireEye and RocketFuel, Silicon Valley is doing well in 2013.
An analysis of the other top major regions on the leaderboard – Mass., SoCal, New York, and Texas – highlights some interesting insights into why Silicon Valley continues to attract VCs. The next chart shows the four regions’ shares of top 50 exits and aggregate exit valuations respectively. None of these major regions show any major changes in top 50 exit trends over the past few years, although more recently MA, SoCal, and TX have all seen a slight decline in exit and valuation shares. New York, on the other hand, has seen a slight increase in the top 50 exit activity because of exits to the likes of Tumblr, Shutterstock and Buddy Media.
What is interesting about these charts is that for all these regions, the lines depicting exit share and valuation share have the same general shape, i.e, the deal and valuation trends are highly correlated. A look below at Silicon Valley shows a very different trend.
In the chart below, Silicon Valley’s share of top 50 exits since 2007 shows much more variance than any of the other states above. Additionally, the Valley’s share in the top 50 aggregate valuations is growing. The most interesting point, however, is the amount of volatility in the magnitudes of the big exits in Silicon Valley which range from 33% at their lowest in 2007 to 84% at their highest in 2012. (Note that the range of the y-axes in all these charts are the same. The vertical range covered by Silicon Valley is many times bigger than that of the other states discussed above.)
When a startup in Silicon Valley hits a home run, it really hits it big. While most investors might not be great at identifying these early, the best and biggest Black Swans continue to come from Silicon Valley.