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| Hey Insiders, Today we are bringing you an analysis of how Texas doubled its VC Funding market share in Q1 and why the gaming sector saw an uptick in funding in Q1. Scroll down for some top funding news and quick hits, then let us know which sector-specific funding you'd like to see more of in future issues!
Karan
p/karan-chafekar |
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| 1 | | California has been the world's startup Capital, with the Silicon Valley region serving as a global center for technology and innovation. California continues to rake in the maximum share of VC funding in the U.S. However, its dominance has slipped year-on-year. In Q1 2023, the state secured 40.7% of all VC capital deployed in the U.S., down from a 45% share across the entire 2022, per Carta. The downward trend has continued for the past few years causing VC funding share to decline consistently from the peak of 51% in both 2018 and 2019. The drop is certainly not a cause for concern for California as no other state was able to secure more than a 13% share of VC funding last year. However, there is a threat rising from the South that could eventually challenge the dominance of California. The state in question is Texas, which doubled its share of VC capital from 3.2% in 2022 to 7.2% in Q1 2023. Texas' rising prominence in the VC ecosystem underlines the "larger southern and eastern shift in capital raised," per Carta. The West region of the U.S. secured 51.2% of the total VC capital deployed, helped largely by California's dominance. However, the West region's share of funding contracted from 55% in 2022. Funding also contracted for the Midwest, dropping from 4.8% to 3.5%. On the other hand, the funding share increased in the other two territories, namely the South and Northeast. South's market share increased from 15.5% to 18.1%, while Northeast's market share increased from 24.5% to 26.8%. The lower cost of living and tax advantage for individuals in Texas is attracting talent and corporations to the state. Per the U.S. Census Bureau, Texas became the fastest-growing state in the nation in 2022, joining the ranks of California as the only two states with a population greater than 30 million. Texas attracted more than 11% of new residents from California between July 2019 and July 2022. Corporations have also joined the migratory trend. Per Hoover Institution at Stanford University, out of 265 corporations that relocated their headquarters outside California, 114 moved to Texas. The strong migration is also helping the startup ecosystem in Texas, with Austin emerging as a new startup hub. Early-stage startups in Austin raked in $5B in VC funding in 2022. While funding was down compared to the record-setting total of $5.4B in 2021, the pullback was less severe than in several other cities. "The Austin region is home to a vibrant tech ecosystem, with a large cohort of rising stars and more than 25 unicorns," says Roland Peña, a senior vice president at the Austin Chamber and Opportunity Austin. Despite the positive shifts in favor of Texas, there is a long way to go before it can take on California in VC funding. However, with the recent uptick, it could challenge its nearest-placed rivals, Massachusetts and New York, which hold the second and third largest share of VC funding, raking in 12.7% and 12.3%, respectively. | | |
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| 2 | | In Q1 2023, venture capital deployment into the gaming sector increased 10.7% QoQ, with 140 deals completed in the first three months of the year worth $1.1B, per Pitchbook's Q1 2023 Gaming Report. Despite the slight uptick, deal values were still down 75.7% YoY, while deal counts were down by 56.4%. The deal count increased by 20.7% QoQ in Q1. Judging by the increased deal count numbers, the uptick in gaming sector VC funding will likely continue into the following quarters. The notion is supported by Konvoy's Q1 2023 Gaming Industry report, which estimates the global gaming market to reach $201B this year, up 9% from the $184M market size in 2022. Early-stage VC investments in the gaming sector are concentrated around content development startups, whereas operations, access, and experience segments dominate late-stage funding. Within the gaming sector, the content segment secured nearly half of the total funding at $504M. The second largest share of funding went to gaming development tool startups, raking in $321.8M of the total. The majority of the gaming sectors deals involved startups in the angel, seed, and early stages. Notable deals inked in the first quarter include Character.ai's Andreessen Horowitz-led $150M Series A round, Believer Entertainment's $55M Series A funding, and LandVault's $39.4M early-stage funding round. Median pre-money valuations of all stages were up since their values in 2020. In Q1, median valuations across all stages was $27.9M. Only venture growth stage startups showed a drop in valuations, with valuations across all other stages remaining relatively stable. Median pre-money valuation step-ups decreased from 1.2x to 1.0x, suggesting that growth-stage startups might have to contend with flat rounds. With the exception of venture growth startups, median deal sizes increased across the industry to $5M, up from $2.2M in 2020. Median deal sizes across all other stages have seen a modest year-on-year increase since 2020. Nine exit deals worth $200M were completed in the recent quarter. The decline in exits is due to the closed IPO and SPAC markets. With a drop in IPO activity, struggling startups in the gaming industry will be looking at M&A options to keep their company afloat, especially as scaling games in this highly competitive industry remains a challenge for new entrants. Gala Sports' $164.2M IPO was the only notable gaming sector IPO completed within the quarter. Notable M&A transactions within the sector include the acquisitions of Vindex, DMarket, and BattleSnake. Despite doubling the preceding quarter's tally of $100M, exits values remained paltry compared to 2020 and 2021's totals, when the sector saw a surge in activity due to COVID-19 pandemic restrictions causing residents worldwide to stay indoors. As a result, consumer spending on consoles, games, streaming platforms, and other gaming-related technology increased. Consumer spending has since receded from the pandemic-induced highs. In Q1 2023, consumer spending in the gaming industry was down 5% YoY to $4.6B in the U.S. market. | | |
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| 3 | | Today's Funding: 3D Printing - Boston-based materials science and additive manufacturing company Fortify secured $12.5M in fresh funding from Lockheed Martin Ventures and RTX Ventures.
AR/VR - AR-powered synthetic air combat training systems maker Red 6 secured $70M in funding at its Series B financing led by RedBird Capital Partners with additional backing from Alpha Edison, Boeing's AEI Horizon X Fund, Lockheed Ventures, Moonshots Capital, and others.
Biotech - San Diego-based synthetic biology startup Debut nabbed $34M in Series B funding led by L'Oréal's VC division BOLD. Participants in the funding round include Fine Structure Ventures, Material Impact, GS Futures, Cavallo Ventures, and others.
- Chinese oncology and autoimmune diseases-focused drug manufacturing biotech startup Lynk Pharmaceuticals closed its Series C1 round with $28.2M (200M RMB) in funding from China Grand Prosperity Investment, Tailong Capital, and Liando Investment.
- Cambridge, Massachusetts-based therapeutics firm Violet Therapeutics raised $10.6M in seed funding led by the Dementia Discovery Fund and University of Tokyo Edge Capital Partners (UTEC).
Healthcare - Cellulite reduction solutions startup Revelle Aesthetics secured $30M in growth funding led by Trinity Capital.
IT - Workforce intelligence solutions company Axuall raised $20M in Series B funding led by Noro-Moseley Partners.
Mining - Chilean advanced copper extraction technology maker Ceibo raised $30M in funding through an Energy Impact Partners-led Series B funding round. Pincus Green, Unearth, Audley, and others backed the financing.
PropTech - Colombian proptech startup Habi raised $50M in fresh funding from IDB Invest.
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- Fidelity revalued its equity stake in social media platform Reddit at $16.6M, representing a 41.1% write-off over its initial investment of $28.2M in August 2021.
- Polish VC firm ff Venture Capital's new "ff Red & White" fund has secured capital commitments worth €32M ($34.2M) against a target of €60M ($64.2M). The fund is aimed at late-seed and Series A stage startups within enterprise software, industrial tech, and sustainability transformation sectors across Central and Eastern Europe.
- Aurum is acquiring proptech startup NestAway for $10.9M, which represents a nearly 95% drop over its peak valuation of $227M in 2019. The firm had raised $115M in VC funding from Sequoia Capital India, Tiger Global, Goldman Sachs, Chiratae Ventures, and others.
- Fusion VC reached the final close of its latest fund at $20M. The fund will invest in pre-seed startups in Israel.
- Invest in Ripple, innovating global finance with over 300 connected financial institutions across 40 countries.*
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| | Karan Chafekar Analyst | | Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot. | | This newsletter was edited by Aaron Crutchfield |
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