The venture capital landscape experienced significant shifts this year, transitioning from a strong beginning in 2020 to a period of uncertainty and apprehension as the COVID-19 pandemic emerged. This slowdown proved to be short-lived, as venture capitalists observed an increase in demand for the software and services offered by startups, leading to renewed growth for many young technology businesses and a resurgence in investment activity.

Boston has clearly demonstrated this pattern, with initial pandemic-related hesitancy giving way to a surge in transactions as the months progressed from summer into autumn.

Recent data we have compiled confirms this trend, revealing that Boston’s performance in the third quarter was notably strong in comparison to other similar hubs, and that the region’s portion of total venture capital funding across the United States increased during that timeframe.

A Robust Q3 and 2020 Overall

The Boston area experienced a highly successful third quarter, achieving venture capital funding levels comparable to those seen in New York City over the same period. As the year progresses into its final quarter, the position for second place among U.S. startup hubs appears to be contested, depending on performance in Q4.

Boston has the potential to begin 2021 as the second-leading destination for venture capital investment nationwide. Alternatively, New York City could secure that ranking. Let's examine the relevant figures.

Data from PitchBook, as reported to TechCrunch, indicates that the Boston metropolitan area secured $4.34 billion in venture capital during the third quarter. The New York City metropolitan area raised $4.45 billion during the same timeframe, representing a near tie. Los Angeles and its surrounding area totaled $3.90 billion.

Year-to-date figures for 2020 show Boston with a slight advantage, having attracted $12.83 billion in venture capital. New York City followed in second place through Q3, with $12.30 billion, while Los Angeles trailed at $8.66 billion for the year through Q3.

Looking at a wider perspective, Boston’s strong performance has positively influenced its region, enabling New England to increase its share of overall U.S. venture capital activity. PitchBook’s Q3 2020 venture capital report provides a regional breakdown of venture capital data for the third quarter, highlighting the success of the New England region, which is largely driven by Boston’s results.

In Q3 2019, New England accounted for 9.3% of U.S. venture deals and 10.3% of U.S. venture dollars. In Q3 2020, these figures rose to 9.3% of U.S. venture deals and 12.7% of U.S. venture dollars. This represents a significant shift, and is a positive indicator for Boston – increasing market share during a period of growth is noteworthy.

Several factors contribute to the strong results observed in Boston and its neighboring states. TechCrunch has gathered insights, and here’s a summary of the current situation in the city.

What’s driving Boston forward

Alongside a thriving venture capital environment, a fresh wave of founders is emerging. Harvard Innovation Labs (iLab), for instance, has experienced remarkable expansion in startups initiated by students. According to executive director Matt Segneri, 394 teams participated in the fall venture program, representing the program’s largest-ever student cohort.

The previous fall saw approximately 175 to 200 teams. Segneri explained that the coronavirus pandemic has brought issues like racial disparities and climate change to the forefront of global concerns.

“This generally fuels significant growth in the inclination to pursue early-stage ventures,” Segneri stated. It’s worth noting that Harvard’s decision to conduct all classes remotely led to over 20% of undergraduate students choosing to take a leave of absence for the fall semester. The increase in startup activity, despite the decrease in student enrollment, indicates that students remaining enrolled are particularly eager for entrepreneurial opportunities.

Segneri emphasized that Harvard is not an isolated instance of Boston’s entrepreneurial capabilities.

“The benefit of geographical closeness is undeniable,” he said. “However, we also attract individuals from 131 different countries who come here to study and establish their businesses. Many of these individuals decide to remain and launch their ventures in Boston, while others expand their reach internationally, and this is the core of our strength.”

Segneri clarified that he doesn’t believe entrepreneurs are required to remain in Boston to achieve success. Rather, he considers the city to be a valuable “starting point and reference point” with a worldwide impact.

Even acknowledging that some of Boston’s appeal stems from its dynamic nature, current statistics demonstrate that companies establishing themselves in the city are capable of securing substantial funding – amounting to billions of dollars.

Later-stage rounds

To conclude, let's examine the largest funding rounds secured by Boston-area companies in the third quarter. The outcomes demonstrate variety, with a significant portion occurring within the biotechnology sector. A noteworthy development during Q3 was the participation of several prominent investment firms headquartered outside of Boston leading these funding efforts.

Biofourmis secured $100 million in Series C funding to advance its work in digital therapeutics and technologies directly serving patients. It's worth noting that the company initially intended to raise a smaller amount earlier in the year. However, following discussions with SoftBank, Biofourmis ultimately received a larger investment than anticipated, according to Crunchbase News.

The on-demand alcohol delivery service Drizly also completed a $50 million Series C round, spearheaded by Tiger Global. This funding followed a 350% growth rate in 2020, a result of increased demand as consumers opted to stay home and avoid bars due to health concerns. Drizly also achieved profitability and expanded its network of retail partners, doubling the number since January.

Indigo further bolstered its position with an additional $360 million added to its existing $200 million Series G round, dedicated to developing a data platform aimed at enhancing agricultural practices and farmer income. As a result of this funding, Indigo welcomed Stéphane Bancel, CEO of Moderna, to its board of directors and gained Alaska Permanent Fund and Flagship Pioneering as investors.

Further coverage of Boston’s tech scene can be found on TechCrunch in November.