_{By Claire Johnson, Ahria Desai, Aastha Arora, and Soledad Perez Leon}

Overview

In this edition of The Equity Effect, we delve into how venture capital is steadily loosening its ties to Silicon Valley. Historically, this geographic region has defined access to capital, talent, and scale. In Q1 2025, 69% of U.S. venture capital funding and 49% of global funding went to companies in the Bay Area (Crunchbase News). Today, capital is increasingly following fundamentals such as specialized talent, cost efficiency, and proximity to real markets.

As costs rise and markets diversify, both founders and investors are rethinking the role that geography plays in venture outcomes. Advances in remote work, global capital mobility, and sector-specific talent pools have weakened the assumption that proximity to a singular location is a prerequisite for scale. The result is a venture landscape that is more distributed, more competitive, and more closely tied to underlying economic activity. Silicon Valley remains influential, but is no longer the default center of gravity. High interest rates and valuation after 2021 pushed investors to less crowded markets where lower entry costs and better capital efficiency offered a safer path to returns.  

Venture capital is becoming less about where companies build and more about what they are built to do. That shift is redefining how startups form, how investors source deals, and how the next generation of leaders will emerge.

What’s inside: 

• The Geography Shift: Why venture capital is becoming less centralized and what’s driving capital beyond traditional hubs
  New Centers of Gravity: How secondary and emerging markets are reshaping where startups are built and scaled

• Capital Meets Real Markets: Why proximity to customers, infrastructure, and cost efficiency is influencing venture outcomes

• Spotlight: Divvy Homes: How a distributed, market-embedded strategy unlocked venture scale outside Silicon Valley

• The Takeaway: Why execution, market alignment, and capital efficiency now matter more than location

A Shift From Place to Performance

Venture capital is entering a new phase. For decades, success was tightly linked to geography. Where a company was built often mattered as much as what it was building. That assumption is beginning to loosen. Investors and founders are increasingly prioritizing fundamentals such as talent density, cost efficiency, and proximity to real markets over proximity to a single hub.

This issue looks at how venture capital is becoming more distributed in practice, not as a trend headline, but as a structural shift in how companies are formed and scaled. Advances in remote work, global capital mobility, and sector specific ecosystems are changing where innovation takes root and where investors look for opportunity.

As capital spreads beyond traditional centers, the advantages that once belonged almost exclusively to Silicon Valley are becoming more accessible. Emerging hubs, secondary cities, and global markets are producing venture backed companies that compete on execution and market alignment rather than location alone.

In this issue, we explore the signals behind this shift and what it means for the next generation of founders and investors.

Let’s get into it.

How Capital, Talent, and Markets are Reshaping Where Startups are Built

For decades, Silicon Valley has been synonymous with venture capital. It was where founders felt they had to be, where investors clustered, and where the biggest checks were written. That gravity has not disappeared, but it has weakened. Venture capital today looks far less centralized than it did even five years ago. Capital is increasingly following talent, cost efficiency, and market proximity rather than a single location, and that shift is reshaping where startups are built. In 2024, firms in the San Jose–San Francisco metropolitan area alone captured roughly 46 percent of all U.S. venture capital funding, underscoring that Silicon Valley still leads the country in absolute terms even as capital spreads more broadly across regions (https://www.osc.ny.gov/files/reports/osdc/pdf/report-13-2026.pdf). Capital is increasingly following talent, cost efficiency, and market proximity rather than a single location, and that shift is reshaping where startups are built.

One of the clearest signals of this change is the rise of major secondary hubs. The New York City metro area raised roughly twenty eight and a half billion dollars in venture funding in 2024, accounting for just over thirteen percent of all U.S. VC investment and cementing its position as the second largest venture market in the country. What makes this notable is not just the size of the capital inflow, but the breadth of industries it supports, spanning fintech, health tech, enterprise software, and media, as well as the stage of investment. Nearly two-thirds of New York’s VC activity in recent years has been concentrated in early-stage deals, underscoring the region’s importance as a launchpad for emerging companies rather than just a destination for late-stage rounds (https://www.mtlc.co/mapping-recent-vc-investment-trends-in-boston-new-york-silicon-valley/). Similar patterns are emerging in cities like Austin, Miami, Atlanta, and Chicago, where local ecosystems are deepening rather than simply producing one off breakout companies. In particular, some of these markets are carving out strengths in fast growing tech segments. For example, AI and deep tech startups in Austin have attracted outsized attention and larger rounds compared with many East Coast peers, reflecting how innovation is taking root beyond traditional coastal hubs. Industry analysis shows that AI companies are accounting for a growing share of total venture dollars, pushing capital toward emerging ecosystems where infrastructure and enterprise focused innovation are scaling quickly.

Beyond large metros, venture capital is also moving into regions that historically sat far outside the tech spotlight. Investment across the U.S. midcontinent has accelerated meaningfully, particularly in hardware, advanced manufacturing, and industrial software. Cities like Columbus, Pittsburgh, and Detroit have seen increased funding for robotics, automation, and mobility focused startups, building on deep ties to legacy manufacturing and research institutions. Notable companies such as Anduril’s Midwest manufacturing expansion, Rivian’s supplier ecosystem across Illinois and Indiana, and robotics firms emerging from Carnegie Mellon illustrate how these regions are producing venture backed companies with national relevance. For investors, this has translated into opportunities to enter promising companies earlier and at more reasonable valuations, while founders gain the flexibility to scale close to customers and infrastructure rather than relocating to the coasts.

The geographic broadening of venture capital is not limited to the United States. Globally, while North America still captures the largest share of VC dollars, the distribution of funding has shifted noticeably over the past 20 years. In 2002, nearly 80 percent of global VC investment was directed to U.S. headquartered firms; by 2022 that share had declined to just under 46 percent, reflecting faster growth in other markets. Over that same period, India’s share of global VC investment climbed from only a few percent to above 4 percent, effectively more than doubling its presence on the world stage. As startup ecosystems mature abroad and global capital becomes more comfortable operating across borders, innovation is increasingly decoupled from any single region. The result is a venture landscape that is more distributed, more competitive, and more reflective of where real economic growth is happening(Information Technology & Innovation Founding).

The takeaway is not that Silicon Valley is fading, but that it is no longer the sole gateway to venture scale outcomes. Founders today can build category defining companies from a far wider set of locations, and investors are adapting accordingly. Venture capital is becoming less about where you are and more about what you are building, and that shift is likely to define the next decade of startup formation.

Company Spotlight: Divvy Homes

Divvy Homes exemplifies how venture-backed companies no longer need to concentrate growth or impact in a single tech hub. Backed by institutional investors, such as Andreessen Horowitz, GGV Capital, and Goldman Sachs, Divvy was founded to address the affordability gap in U.S. housing by allowing renters to gradually build equity while living in their homes. Because Divvy’s unit economics depend on local home prices, household incomes, tax regimes, and housing regulations, its business model targets an inherently local, market-specific problem that requires proximity to regional housing dynamics rather than Silicon Valley density.

Instead of expanding by clustering talent in one city, Divvy scaled across dozens of mid-sized U.S. metros, including markets in the Midwest and Sun Belt where housing constraints are most acute. This geographically distributed strategy aligned with the company’s operational needs and made it attractive to investors seeking exposure to real-economy problems outside traditional tech centers. Divvy’s success highlights how venture capital increasingly rewards startups that are embedded in regional markets and built around cost efficiency, rather than proximity to Sand Hill Road (Contrary Research).

Podcast of the Week 🎙️

This episode dives into how founders and investors are building and funding startups beyond traditional tech hubs, with an emphasis on capital efficiency, regional strengths, and modern venture strategy.

That’s a wrap for this week’s edition of The Equity Effect. Venture capital is no longer defined by a single place. It is being reshaped by where real markets, talent, and efficiency intersect. As founders build closer to customers and investors rethink how geography fits into returns, the venture landscape is becoming more distributed, more competitive, and more grounded in fundamentals.

If this edition sparked new thinking about where the next generation of category defining companies will emerge, share it with a founder, investor, or student builder in your network. And if you are seeing an ecosystem, company, or regional trend worth highlighting, let us know. We are always listening.

See you next time,
The Equity Effect
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