The last few months in San Diego marked the third-lowest quarter of the decade for venture capital investment, with only $804 million raised.<\/p>\n
San Diego is having a painful funding stretch \u2014 not because its startups are underperforming \u2014 but because investors are chasing the AI hype in San Francisco. The irony is, dollar for dollar, San Diego biotechs have delivered stronger returns than their counterparts in the Bay Area.<\/p>\n
Total deal count dropped slightly in the second quarter, to 62 from 66 in the year-ago time period\u00a0\u2014\u00a0 and last year didn\u2019t have a particularly good second quarter either.<\/a><\/p>\n The San Diego deals that closed in the second quarter were for later-stage startups with strategic partners. Among them are a drone-factory startup backed by Lockheed Martin Ventures; a cancer treatment platform born out of the National Cancer Institute and funded by Japanese and Taiwanese institutional investors; and a lab-instrumentation startup with a Nobel laureate on its board and the Australian government among its investors.<\/p>\n San Diego\u2019s largest deal for this latest quarter was $171 million for Radar, an AI-powered retail intelligence platform that uses ceiling-mounted sensors to give retailers real-time, item-level inventory visibility across physical stores. Today, Radar\u2019s tech sensors are being used in American Eagle and Old Navy.<\/p>\n A few miles away, Rakuten Medical, a global biotech company also based in San Diego, raised more than $111 million in April. Rakuten created Alluminox, a novel cancer treatment platform now in Phase 3 trials for head and neck cancer. The biotech already has an approved drug on the market in Japan.<\/p>\n But these local investment rounds are only a fraction of what\u2019s being put into other markets.<\/p>\n Boston and San Francisco saw capital in orders of magnitude greater than San Diego. Bay Area startups pulled in over $93 billion in the second quarter; Boston over $4.7 billion. Meanwhile, San Diego didn\u2019t even come close to raising a billion dollars.<\/p>\n Smaller startup markets like Seattle and Chicago have experienced similar struggles, each city having raised $1.5 billion and $709 million, respectively.<\/p>\n One explanation: \u201cThere are the AI darlings, and then there\u2019s everyone else,\u201d said Hussein Yahfoufi, a San Diego tech founder who runs a networking group for other founders called Eventship. And everyone else is held to a more rigorous standard, having to prove later-stage evidence for early stage funding, he said.<\/p>\n The past six months in San Diego were illustrative of that. At the beginning of this year, Shield AI raised $1.5 billion for its autonomous drones; that single investment round accounted for over half of everything San Diego startups raised in the first quarter.<\/p>\n Since then, investment in the region fell sharply \u2014 20% from the same quarter last year, according to a report by PitchBook, an industry research firm, and the National Venture Capital Association.<\/p>\n These declines aren\u2019t surprising to Kyle Stanford, director of venture capital research at PitchBook. Fundraising is down because local investment funds have left the market.<\/p>\n In 2022, San Diego was home to 13 \u201cA-tier\u201d funds \u2014 industry shorthand for the most established, top-performing funds with strong track records and enough clout to get first pick of the best startup deals, Stanford notes.<\/p>\n Last year, that number dropped to two.<\/p>\n A combination of the post-pandemic transition to in-person work, siloing startup spending to bigger markets and climbing interest rates has led to less discretionary spending, Stanford explains.<\/p>\n \u201cIf you\u2019re an investor in the Bay Area and there\u2019s a great preclinical stage biotech in San Diego, and a great preclinical stage company down the street, it\u2019s much easier to invest there,\u201d said Stanford. \u201cProximity to money is very, very important.\u201d<\/p>\n Despite the low levels of capital coming into San Diego, local biotechs were still able to deliver strong deals in 2025.<\/p>\n For every 100 San Diego biotech companies, 18.2 got acquired \u2014 compared to 12.3 in Boston and 9.5 in San Francisco, according to the report, according to an analysis by investment banking group H.C. Wainwright & Co.<\/p>\n And when San Diego companies did get acquired, investors made higher average returns on them \u2014 over 200% locally compared to just a 48% gain in Boston and 10% in the Bay Area.<\/p>\n \u201cFor every dollar invested across every company in San Diego, you get $1.75 back, whereas in the Bay Area it\u2019s $1.05,\u201d said Mike Krenn, managing director for Prebys Ventures, of the report\u2019s findings.<\/p>\n Krenn notes that a half-dozen San Diego companies have notched billion-dollar deals in the past few years.<\/p>\n Among them, Cidara Therapeutics, a San Diego influenza drug startup. After raising only $72 million, Cidara CEO Jeff Stein and a few dozen employees sold the company for $9 billion to Merck earlier this year.<\/a><\/p>\n