STARTUP FUNDING
The uncertainty associated with the COVID19 pandemic increased investor scrutiny and lessened the number of venture capital deals throughout 2020, but deal activity improved to pre-COVID-19 levels by December. At the start of 2022 deal activity across most metros are below pre-COVID 19 levels.
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WHAT THE DATA IS TELLING US NOTE: In August 2021 the metric for startup funding changed from measuring the month-to-month count of venture capital deals to measuring the cumulative, year-to-date count of venture capital deals. While month-to-month tracking allowed us to consider the influence of COVID-19 uncertainties on funding decisions in real time, it was found that volatility resulted from reporting methodology than on market responses. In switching to a year-to-date count of deals, we can observe yearly progress in startup funding, As of February 2022, there have been 44 venture capital deals among MSP-headquartered companies year-to-date, nearly 8% more than the 41 deals that had occurred year-to-date in 2019 (pre-COVID) and 2020. Month-over-month deal activity increased by nearly 110%. There were 240 total venture capital deals in 2021, 22% more than the number of deals in 2019 (196). So far early numbers show a decline in deals, but deals may be revised upward to show increased deal activity. |
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This metric tracks the total number of venture capital year-to-date for companies headquartered in the Greater MSP metro area. Data is updated monthly and sourced from PitchBook.
WHY THIS MATTERS TO ECONOMIC RECOVERY:
Venture capital is a vital source of funding for startup companies and is therefore critical for business creation, growth and innovation within our regional economy. Since nearly all sectors and areas of the economy have been impacted in some way by the pandemic, it is critical to track how these effects are impacting the ability of the newest small companies to raise the capital they need to grow and thrive. Venture capital investments are a leading indicator of recovery, as they signal early confidence in the market and the ability for startups to grow and scale, fueling economic growth in the process.
RACIAL EQUITY AND INCLUSIVE RECOVERY:
According to FORGE NORTH, the region’s coalition of startups, innovators, and entrepreneurial support organizations, BIPOC-led startups traditionally receive only 2% of venture funding in the United States. This disparity is further exacerbated by the lack of available data on diversity of founders. Deal activity data sources like PitchBook do not collect information on the racial diversity of startup owners. Though we know anecdotally that these disparities exist in our region, we aren’t able to measure exactly how MSP compares against other regions in terms of racial disparities in access to capital.
FORGE NORTH is seeking ways to track the diversity of those receiving funds locally and is seeing good traction by partners in working to address disparities in access to capital. It is critical to continue to address these issues in the startup ecosystem specifically as the region works toward a more inclusive economy.
TELLING THE FULL STORY:
Though the number of deals is a strong and real-time indicator to assess startup growth, the number of deals doesn’t tell the whole story of what’s going on with venture capital and startup funding in our region. There are other forms of capital helping startups to grow and scale. Angel investments, loans, grants, prize competitions, crowdfunding platforms, family offices, corporations, and other strategic partners also invest in startups and these deals are not captured within this data.
GREATER MSP uses the PitchBook database to collect and analyze venture capital deal activity as it is the most robust nationwide source of deal data available. However, it is important to keep in mind that this platform may not capture all deal activity, and data may lag for some deals.
HOW WE STACK UP:
The impacts of the COVID-19 pandemic on startup funding differ widely across regions. To understand the relative intensity of COVID-19 impact and the pace of recovery, we are comparing monthly year-to-date venture capital deal activity trends for the MSP region’s peers, a set of regions selected based on demographic and economic characteristics. The same peer regions are tracked in the Regional Indicators Dashboard, a set of indicators that track MSP’s long-term economic competitiveness.
To measure startup funding recovery relative to peer regions, we are comparing cumulative year-to-date venture capital deal activity for the most current month to the same month one year ago, and the same month in 2019 (pre-COVID). Among the peer group, all regions experienced an increase in deal activity from the previous month as deal activity increased by at least 100% in six of MSP’s peer regions. Pittsburgh had the largest month-over-month change in deals, up by 175%. Comparing pre-pandemic deal activity all but two regions, Greater MSP and Charlotte, had deal activity below 2019. Greater MSP increased by 7.3% and Charlotte saw no change. Pittsburgh saw the largest decrease from February 2019, down by 68.6%. Note that data is not available for the Austin, TX region.
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HOW TO LEARN MORE:
FORGE NORTH is an initiative of the GREATER MSP Partnership. This coalition of entrepreneurs, investors, corporate innovators and other allies work together to make our region the best place in the world to start ventures, solve problems and scale impact. The initiative is inviting members of this region to take action by investing in startups directly, sponsoring programs supporting, educating, and connecting startups, and spread the word about the startup community and what’s happening locally.
The Kauffman Foundation is a resource for data and insights on innovation and entrepreneurship nationwide. Their Access to Capital For Entrepreneurs: Removing Barriers report specifically provides extensive insight into the trends and outcomes of entrepreneurship associated with access to capital.
Tech.mn is Minnesota’s source for technology news with an emphasis on startups and innovation. Their Mind the Gap series underscores the need to increase access to pre-seed funds for startup growth.
Want to share insights from the Regional Recovery Hub in your own presentations and materials? Download the Recovery Toolkit.