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Seed Stage Venture Capital in the South: Top 3 Takeaways for Institutional Investors

Valor just released its 2024 Seed Stage VC Outlook focused on the South region. For institutional investors seeking new deep pools of longterm alpha-producing strategies, the 2024 outlook presents a pattern of compelling opportunity.

  • For the full nine page report including charts and graphs, please download here.

1. Untapped Potential in a Rapidly Growing Market

The South is experiencing a significant rise in tech entrepreneurship, outstripping traditional hubs. With a 75% increase in new business applications in Atlanta from 2020 to 2022, and similar trends in other Southern cities, the region is emerging as a fertile ground for venture capital investment. The South’s burgeoning population, now the largest region in the U.S. and the fastest growing, combined with its accelerated economic growth, underscores a vast market potential waiting to be tapped. For institutional investors, this represents a ripe opportunity for early-stage investments in a rapidly expanding market.

2. Favorable Valuations and Resilient Deal Flow

Southern seed ventures are marked by relatively lower valuations and a resilient deal flow. The region accounts for a rising share of seed deals, approximately 30% in the past four years, with median valuations remaining under $10 million. This trend of rational and less volatile seed stage valuations presents a more attractive entry point for investors compared to other regions. The robust deal flow, despite national downturns in other regions, signifies a resilient and growing startup ecosystem, potentially offering higher returns for early-stage investors.

3. Funding Gap: An Opportunity for Alpha Generation

There exists a significant funding gap in the South, with a shortfall of local capital for seed stage investing. Institutional investors have an opportunity to fill this gap, as local entrepreneurs currently must seek half of their capital needs outside the region. By investing locally in these seed ventures, institutional investors not only contribute to regional economic development but also position themselves advantageously in a less saturated market. This dynamic creates a unique alpha-generating opportunity, as local seed ventures, backed by robust entrepreneurial and corporate ecosystems, are likely to yield substantial returns.

As the report details, the Southern United States increasingly offers a distinctive landscape for seed stage venture capital investments. For institutional investors aiming for high returns and meaningful market impact, the region’s growing tech scene, favorable valuations, and the existing funding gap present a strategic investment frontier.

  • For the full nine page report including charts and graphs, please download here.