San Diego VC Funding Nears Record Levels

San Diego venture capital funding hasn’t slowed down. Although the market has been a hotspot for venture capital investment for years, the first quarter of 2021 managed to near record breaking levels. San Diego companies raised $2.3 billion in venture capital funding in the first quarter, the second highest on record, according to research from CBRE. The highest on record was in the fourth quarter of 2020.

Life science and technology companies drove the bulk of the funding activity. Life science companies raked in more than $1.8 billion, while tech companies accounted for $400.7 million. Eight single transactions were responsible for the large number. The companies received investments from $100 million to $300 million. “These eight deals accounted for roughly half of the quarterly investment volume,” Michael Combs, associate field research director at CBRE, tells GlobeSt.com. “There were also several sizeable tech deals nearing $100 million and it was one of the strongest quarters on record for tech investment. It was a diverse mix of companies receiving funding, but the largest rounds were for biopharma R&D, artificial intelligence and digital marketing companies primarily.”

While some have mused that the pandemic fueled VC investment in these fields, Combs says that it is difficult to say the true impact. However, he says that there is a positive correlation. “In the four quarters since the start of the pandemic (Q2 2020-Q1 2021), San Diego companies have received nearly $7 billion in funding, shattering any trailing four-quarter in history in the local market,” says Combs. “More than $5 billion went to life sciences companies during that period. Some investments have been to companies that develop technologies directly related to the pandemic (i.e. testing kits, therapeutics), but it is also likely that the pandemic has heightened investor interest in genomics and other biopharma R&D companies that may play a critical role in fighting and preventing future outbreaks.”

Ultimately, increased funding will also positively impact the real estate market because most companies are likely to use the funding to expand in some way. According to Combs, there is a consistent track record of companies making real estate decisions following these funding rounds. “For tech companies in mid-to-late stages, building out a sales and account team and other professional service functions typically leads to the need for more office space,” he says. “For life sciences companies, it depends on what they are developing, but may lead to more lab/R&D space needed to suit an equipment purchase or could mean distribution space if they are now ready to take a physical product like a diagnostic or therapeutic device to market. In some cases they may also be looking for more space for increased non-technical positions like sales or finance.”

Even better, life science companies—which received most of the funding in the first quarter—require an office for work, and many life science companies maintained an office environment through the pandemic. That will buffer the industry from andy demand-side changes coming to the office market. For life science companies, real estate continues to be an important investment as life science workers need specialized lab equipment and space to conduct their work, which is difficult to replicate in a home setting,” says Combs, who adds that tech is more exposed to changes in office culture. These companies could adopt a hybrid model of both office and remote work structures.

San Diego has been a hotspot for venture capital investment since 2018, and while this quarter will be hard to beat, Combs expects another record breaking year. “The last two quarters have exceeded $2 billion per quarter, so that will be a high pace to match, but if the next few quarters even get close, we will likely see another record-breaking year for VC funding,” says Combs. “There has already been companies receiving rounds over $50 million and $100 million in Q2 and a strong volume for tech in particular. As long as San Diego-based startups continue to emerge and seek financing, there seems to be continued willingness to invest on the other side.”