California: The Best to the Worst States for Pre-IPO Startups in 2024

California Leads, While Hawaii, New York, Utah, and Texas Follow in the Best and Worst States for Pre-IPO Startups in 2024

According to the CCA Crowdfunding GenomeTM, California is once again the best state for startups. This marks the eighth consecutive year that California has topped the list, an achievement that underscores its unrivaled status as a hub for innovation and entrepreneurship. The state’s top position is bolstered by several key factors, including world-renowned ecosystems like Silicon Valley/San Francisco, Los Angeles, and San Diego.

Why California Continues to Lead

Silicon Valley is globally recognized for its concentration of tech giants, startups, and venture capitalists, creating a unique environment where cutting-edge technology and investment opportunities thrive. The presence of prestigious universities like Stanford and UC Berkeley further fuels the ecosystem by providing a steady stream of talent and research breakthroughs.

Southern California, including Los Angeles, has also become a thriving startup scene. Its diverse industry focus ranges from entertainment and media to biotechnology and aerospace. Initiatives like PledgeLA and support from local governments have fostered a more inclusive and supportive environment for entrepreneurs, promoting diversity in tech and venture capital.

Challenges: High Costs and Taxes

Despite its many advantages, California does face significant drawbacks, particularly its tax structure and cost of living. These factors can impact the overall attractiveness for startups looking to minimize operational expenses and maximize financial efficiency. However, these challenges have not significantly deterred the influx of startups and investment in the state.

Momentum and Economic Impact

California received the highest score for Momentum, which measures economic impact and growth potential through capital reinvested in the state and unrealized wealth creation. California issuers led in the reinvestment of money back into the economy, totaling approximately $8.3 billion, and experienced high valuation growth at 276%.

Capital and Financial Support

The state also scored highest for Capital, indicating robust financial support available to startups through direct investments and growth in investor sentiment. States that score high in this category are able to raise substantial funds from investors and receive follow-on investments, signaling a strong belief in the ecosystem’s companies.

Scalability and Market Access

California excels in Scalability, which measures startups’ access to markets and potential for scaling. The state boasts more revenue-generating companies and higher median valuations compared to other states, indicating its superior market value and scalability potential.

Key Statistics from 2023

In 2023, companies in California raised over $162 million through 283 successfully funded deals across 121 NAICS industries. Among these, 46 deals raised over $1 million, with four exceeding $5 million. San Francisco led with 39 deals, Los Angeles with 20, and San Diego with 19. Overall, 109 cities in California were involved in at least one Regulation Crowdfunding deal, with over 94,000 investors, primarily from California, supporting local businesses.

The average valuation for successful deals in California was $35 million, with a median of $16 million. Post-revenue issuers had an average valuation of $39.4 million ($18 million median), while pre-revenue issuers averaged $26.4 million with a median of $15 million. Startups under three years old had average and median valuations of $20.8 million and $10 million, respectively. In comparison, established issuers over three years old averaged $43.4 million and had a median of $20 million.

The total value of all successful issuers in California in 2023 was $7 billion, indicating potential significant returns for some investors upon exit. Last year, California companies created or supported over 22,800 jobs and achieved more than $372 million in revenue, critical data points for civic leaders nationwide.

Other Top-Ranking States

Following California in the rankings are Hawaii, New York, Utah, and Texas. Utah moved up from fifth to fourth place this year, while Texas fell from fourth to fifth place. These states have their own strengths and unique advantages that contribute to their high rankings.

California’s leadership in the startup ecosystem is well-deserved, given its robust investment climate, supportive policies, and exceptional talent pool. However, other states like Hawaii, New York, Utah, and Texas are also making significant strides in fostering innovation and supporting entrepreneurial growth. As we continue to monitor and analyze the dynamics of startup ecosystems, these findings provide valuable insights for entrepreneurs, investors, and policymakers looking to drive economic growth and innovation. Read the full report for further information on what drove California to the top of the list and what Hawaii is doing to stand out.