Why startups in California and New York get higher valuations

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Why startups in California and New York get higher valuations—and it’s not just about location

The data is in: Startups based in California and New York enjoy a noticeable valuation bump compared to those elsewhere in the U.S. After crunching the numbers from over 7,000 funding rounds since 2019, it’s clear that the premium for being in these two major markets is not only real—it’s growing.

By the numbers: In 2024, the median valuations for startups in California and New York were substantially higher than those in other states:

• Seed stage: 41% higher

• Series A: 59% higher

• Series B: 38% higher

After dipping a bit in 2023, this premium is back in full swing. But why?

What's driving the premium?

• Established ecosystems: The Bay Area and NYC are home to mature startup ecosystems, making the competition for investment fierce and pushing valuations up.

• Initial bumps: Startups in these regions often start with higher valuations in the earliest stages, setting a trend that continues through later rounds.

• Migration effect: By the time companies hit Series B, many promising startups from other regions have relocated to these hubs, further inflating local valuations.

• Less price sensitivity: Investors in these established markets are typically willing to pay more, believing in the long-term potential of these startups.

The bigger picture: While California and New York have a clear edge, startup valuations are up across the board—suggesting a general boom in the startup space. However, the pull of the Bay Area and NYC remains strong, and for now, they’re still the places to be if you want that extra valuation boost.

Curious for more insights? Keep following us for the latest data drops and trends in the startup world.

Why company names are so hard to change

Changing a company name rarely shifts public perception as intended. EY (formerly Ernst & Young) learned this when employees played the NYT's Connections game and still associated "Young" with the old brand.

The big picture: New names need constant exposure to stick, but the public often clings to old ones. This is why names like Alphabet, Meta, and WW haven't caught on, years after rebranding from Google, Facebook, and Weight Watchers.

Between the lines: EY isn’t alone; PwC Consulting rebranded to "Monday" in 2002, but the name disappeared quickly after an acquisition.

The bottom line: Names have staying power. Just ask anyone flying into Newark Airport or crossing the Tappan Zee Bridge, where official name changes haven’t altered common usage.

The new normal for SaaS

Since 2019, the landscape of SaaS has shifted dramatically, fundamentally altering how companies approach growth. The days of rapid ARR (Annual Recurring Revenue) expansion are behind us, replaced by a new focus: Net Revenue Retention (NRR).

The big picture: In 2022, the game changed. Acquiring new customers became more difficult and costly, forcing SaaS companies to pivot. Now, NRR isn't just another metric; it's the key to sustaining growth. With more than 2,500 SaaS businesses under study, the trends are clear: retention drives success in this new era.

Driving the news: SaaS companies are seeing slower growth in new business. Companies with $15M-30M+ ARR are now getting 40% of their growth from existing customers—up from 30% in early 2021. This shift highlights the critical role of retention in maintaining momentum.

• Achieving a 100%+ NRR is increasingly rare across all ARR levels. Even top performers are struggling to hit this benchmark as new business growth slows.

• The median company with ≥100% NRR is growing at 48% year-over-year, outpacing those with lower NRR. This is especially true for companies with smaller subscriber bases but high customer retention.

• The challenge is compounded as subscriber numbers rise. Companies with over 12,000 subscribers often see NRR drop to around 76%.

Between the lines: The data shows a clear trend: companies need to balance retention and acquisition. While growth can still occur with lower NRR, it’s harder and less sustainable. Retention is not just a metric—it’s a strategy.

The bottom line: The SaaS landscape has stabilized somewhat in 2024, but growth is no longer as explosive as it was during the 2020-2021 boom. Now, the focus is on efficiency, customer satisfaction, and sustainable growth. Companies that can adapt to this new normal will thrive; those that can't may struggle to keep pace.

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• These are the 22 most promising healthcare AI startups of 2024, according to top VCs [link]

• OpenAI co-founder Sutskever's new safety-focused AI startup SSI raises $1 billion [link]

• Kamala Harris expected to propose $50,000 tax break for small business startups [link]

• Rise of the pint-size startup is reshaping the U.S. economy [link]