Venture capital AUMs in the Southeastern United States has grown nearly 400% over the last 5 years, with a CAGR of 31.7% according to Preqin’s Territory Guide: Venture Capital in the Southeastern US.
By the end of 2021, VC AUM in the region rose to $37bn from just $9.4bn in December 2016 at a compound annual growth rate (CAGR) of 31.7% . That asset growth was on pace with the larger national trend that saw VC allocations jump sharply in 2021 when regional VC firms added $13bn in AUM.
Amid this increase in assets, the number of managers and funds based in the region also rose. Last year, 75 funds closed about $5.2bn in aggregate assets. On 2020’s $2.8bn closed across 41 funds. Through the first nine months of 2022, 44 funds closed a total $2.4bn, on pace to fall below the highs of the year before.
Most recent Preqin data shows that 758 VC managers are operating in the Southeastern US, investing both in the region and globally. More than a quarter of those managers began operations since 2017, and are concentrated in Florida, Georgia, Virginia, and North Carolina. That growth has recently slowed in 2022 as equity markets, particularly tech, sold off.
Despite fewer managers opening funds this year, the number of funds managed in the region increased. More than 570 2021-vintage year funds came to market last year, followed by another 507 through the first nine months of 2022. On average, about 340 funds began investing annually between 2016 and 2020. Again, these funds were highly concentrated in the states mentioned above.
In 2021, total deal value in the region neared $15bn as VC investment across the country experienced a surge. While that number may seem insignificant in comparison to other regions like the Western US ($177bn),
VC investment in the Southeastern US rose at a five-year CAGR of 38.9% as of December 2021, just ahead of the national average of 35.6%.
Through the first nine months of 2022, private companies based in the Southeastraised $12.7bn in total.
The pandemic played a part in the redistribution of the US population, but the seeds of growth had already been planted. US census data shows that several parts of Southern US saw net gains in population from 2020 onward, but places like Miami (Florida), Northern Virginia, and Charlotte (North Carolina) were already mestablishing themselves in the VC space, particularly as tech hubs far from Silicon Valley.
VC investment in the Southeastern US has historically been on par with the Midwestern US. Yet the draw of lower taxes, better weather, and, at the time, laxer COVID-19 policies swung the balance southward, particularly for employees with the freedom to work remotely. The 1,088 deals made in the Southeastern US between 2021 and 2022 made up 8.3% of total US VC deals over that period, ahead of both the Midwestern US (6.5%) and the Southwestern US (4.5%)
In dollar terms, the $28bn in aggregate deal value was also ahead of both the Midwestern US ($19.2bn) and the Southwestern US ($15bn) over the 21-month period ended September 2022.
In 2022, the average deal size for the Southeastern US was $35mn, up from $27mn the year before. It’s important to note that average deal size jumped between 2019 and 2020, from $14mn to $23mn. While the pandemic attracted headlines in 2020, the global response to dropping interest rates was a major factor in the rise in valuations. Although deal prices have remained stubborn in the face of rising rates, it’s uncertain they’ll hold as recessionary pressure builds.
It remains to be seen how this year’s macroeconomic challenges – a down equity market, high inflation, and increasing interest rates – will impact the tech sector.
Private markets tend to lag public market corrections, something that is still yet to be seen in the Southeastern US. So far in 2022, the average information technology deal has been slightly lower than the average deal size at $30mn, however, this is still $4mn higher than that of 2021.