In a matter of months, San Diego’s startups raised more than $1 billion in venture capital funding, which has become a more common occurrence in the past five years.
San Diego County startups reined in 59 deals worth a total of $1.4 billion during the second quarter ending June 30, according to PitchBook, an industry research firm, and the National Venture Capital Association.
The amount of money raised by local companies is up 84.5 percent from the same period last year. Meanwhile, the total number of deals is down 10.6 percent from last year.
It’s San Diego’s lowest second quarter deal count in a decade, though not by much – there were 61 deals in 2020 and 62 deals in 2019.
One of the major factors weighing down dealmaking and influencing how investors deploy their money has been high interest rates.
San Diego has started to shake off the dealmaking cobwebs with a few large transactions. But overall, it’s still a tough environment for early stage companies to get that crucial first round of funding.
Across the industry, there’s been a trend of investors writing larger checks to fewer founders. This could be because “market players are placing a premium on confidence” in established founders, writes Bobby Franklin, president and CEO of the National Venture Capital Association in the quarterly report.
“American venture capital is finding its footing in 2024,” Franklin said. “With steadily increasing deal values, especially across early stage investments, more first-time financings, and increased crossover investor participation, (the second quarter of 2024) was a good one for VC. Now it’s up to founders, investors and regulators to support, rather than stifle, these green shoots as the market heads toward a recovery.”
In San Diego, the contrast of higher deal values on the backs of fewer venture capital deals has been a consistent theme in recent quarters. And those total deal values exceeding $1 billion, without much fluctuation between quarters, is something San Diego didn’t see before the pandemic.
Experts attribute that steady rise to the reputation San Diego has built in the venture capital scene over the past decade, particularly in the life science sector.
“Despite the economic headwinds, San Diego’s life sciences sector continues to be resilient, it continues to attract significant venture capital interest and that is a testament to the region’s robust (research and development) and innovation ecosystem,” said Ayman AlAbdallah, partner at investment firm, Mubadala Capital.
His firm invests in early stage biotechnology platforms and health care technology that is aimed at improving how drugs are discovered for a broad set of diseases. AlAbdallah said that during the first half of this year, there’s a sense of cautious optimism among investors. But, that doesn’t change the momentum behind the local life science startups that have solid data to back their innovations.
“For us as investors, we’re not investing in these companies for what they will produce in a quarter or in six months or just in a year,” he said. “We’re interested in the value that they will create for societies over the next 10 years.”
Mike Krenn, the head of Connect/San Diego Venture Group, said that the value being created by local startups has been years in the making. As far as San Diego’s ability to raise more than $1 billion in capital each quarter, Krenn says that shift coincides with a change in thinking about what San Diego has to offer.
“It’s more than just the money too,” Krenn said. “It’s all anecdotal data, but I was telling some people the other day that five years ago, people sort of cut their teeth in San Diego and then moved to Silicon Valley. It’s totally flipped.”
Krenn said that in the past, people didn’t want to venture south because it was perceived that if you lost your job or your company went sideways, there was no place to go.
“People now long to come to San Diego … there’s an influx of people, particularly from San Francisco, where they’re moving here, they’re setting up companies, there’s VC’s moving to town,” he said. “It’s still on the front end of its wave … but it’s palpable.”
And despite having fewer resident venture capital funds based here, compared to other major metropolitan areas, Krenn said San Diego still manages to bring in sizable deals.
During the second quarter, each of San Diego’s top deals wrangled in at least $100 million in fundraising, according to PitchBook. Four out of San Diego’s top five venture capital deals this quarter were life science startups.
The second quarter was led by Avenzo Therapeutics, which notched a $223 million Series A round. Avenzo, which is led by industry veteran Athena Countouriotis, is a prime example of investors choosing to back an established founder with a track record of success.
The deal was announced at the end of March but Avenzo received the capital in April, therefore PitchBook said it appeared in both the first quarter and second quarter deals report. Even without recording Avenzo’s deal during the second quarter, San Diego reached $1 billion in venture capital funding.
The other large life science deals during the second quarter included Endeavor BioMedicines bringing in $133 million; Alterome Therapeutics with $132 million; and Autobahn Therapeutics raising $100 million. Additionally, Platform Science, a technology startup making software tools for fleet management, raised $125 million.
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