{"slug": "san-diego-biotechs-outperform-san-franciscos-but-cant-raise-money", "title": "San Diego biotechs outperform San Francisco’s but can’t raise money", "summary": "San Diego startups raised only $804 million in the second quarter, the third-lowest quarterly total of the decade, as investors flock to AI hype in San Francisco despite San Diego biotechs delivering stronger returns dollar for dollar, according to PitchBook and the National Venture Capital Association. The region's deal count fell to 62 from 66 a year earlier, and the number of top-tier local investment funds dropped from 13 in 2022 to just two last year, said Kyle Stanford, director of venture capital research at PitchBook.", "body_md": "**Getting your**\n\n[Trinity Audio](//trinityaudio.ai)player ready...The last few months in San Diego marked the third-lowest quarter of the decade for venture capital investment, with only $804 million raised.\n\nSan Diego is having a painful funding stretch — not because its startups are underperforming — 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.\n\nTotal deal count dropped slightly in the second quarter, to 62 from 66 in the year-ago time period** **— and last year didn’t have a particularly good second quarter either.\n\nThe 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.\n\nSan Diego’s 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’s tech sensors are being used in American Eagle and Old Navy.\n\nA 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.\n\nBut these local investment rounds are only a fraction of what’s being put into other markets.\n\nBoston 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’t even come close to raising a billion dollars.\n\nSmaller startup markets like Seattle and Chicago have experienced similar struggles, each city having raised $1.5 billion and $709 million, respectively.\n\nOne explanation: “There are the AI darlings, and then there’s everyone else,” 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.\n\nThe 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.\n\nSince then, investment in the region fell sharply — 20% from the same quarter last year, according to a report by PitchBook, an industry research firm, and the National Venture Capital Association.\n\nThese declines aren’t surprising to Kyle Stanford, director of venture capital research at PitchBook. Fundraising is down because local investment funds have left the market.\n\nIn 2022, San Diego was home to 13 “A-tier” funds — 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.\n\nLast year, that number dropped to two.\n\nA 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.\n\n“If you’re an investor in the Bay Area and there’s a great preclinical stage biotech in San Diego, and a great preclinical stage company down the street, it’s much easier to invest there,” said Stanford. “Proximity to money is very, very important.”\n\nDespite the low levels of capital coming into San Diego, local biotechs were still able to deliver strong deals in 2025.\n\nFor every 100 San Diego biotech companies, 18.2 got acquired — 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.\n\nAnd when San Diego companies did get acquired, investors made higher average returns on them — over 200% locally compared to just a 48% gain in Boston and 10% in the Bay Area.\n\n“For every dollar invested across every company in San Diego, you get $1.75 back, whereas in the Bay Area it’s $1.05,” said Mike Krenn, managing director for Prebys Ventures, of the report’s findings.\n\nKrenn notes that a half-dozen San Diego companies have notched billion-dollar deals in the past few years.\n\nAmong 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.](https://www.sandiegouniontribune.com/2025/12/31/how-a-san-diego-startups-universal-flu-shot-sold-for-9-billion/)\n\n[Crinetics Pharmaceuticals](https://www.sandiegouniontribune.com/2026/07/17/a-promising-hormone-drug-leads-to-10-billion-sale-of-san-diegos-crinetics-pharmaceuticals/) is another biotech that is in the process of closing a $10 billion acquisition by Vertex Pharmaceuticals.\n\nSan Diego’s edge over Boston and the Bay Area is driven by strong science, Krenn said, cataloging the world-renowned institutes and universities that line the Southern California coast: Scripps, Salk, University of California San Diego, San Diego State University, Sanford Burnham Prebys and Scintillon Research Institute.\n\nDespite these strong returns, investors’ eyes seem to be glued to San Francisco, where Elon Musk’s SpaceX IPO minted thousands of new millionaires and even a few billionaires, said Neil Bloom, a partner at Rising Tide Ventures.There is a fear of missing out among investors right now, he explained. Most venture capital dollars are going to former engineers from Anthropic, SpaceX and OpenAI.\n\nThe sentiment is basically, “if you worked on SpaceX, we know you’re serious, you’re a builder, and you made us money,” said Bloom.", "url": "https://wpnews.pro/news/san-diego-biotechs-outperform-san-franciscos-but-cant-raise-money", "canonical_source": "https://www.mercurynews.com/2026/07/22/san-diego-biotechs-outperform-san-franciscos-but-cant-raise-money/", "published_at": "2026-07-22 18:00:56+00:00", "updated_at": "2026-07-22 18:24:54.176991+00:00", "lang": "en", "topics": ["ai-startups", "ai-tools"], "entities": ["PitchBook", "National Venture Capital Association", "Kyle Stanford", "Radar", "Rakuten Medical", "Shield AI", "Lockheed Martin Ventures", "Eventship"], "alternates": {"html": "https://wpnews.pro/news/san-diego-biotechs-outperform-san-franciscos-but-cant-raise-money", "markdown": "https://wpnews.pro/news/san-diego-biotechs-outperform-san-franciscos-but-cant-raise-money.md", "text": "https://wpnews.pro/news/san-diego-biotechs-outperform-san-franciscos-but-cant-raise-money.txt", "jsonld": "https://wpnews.pro/news/san-diego-biotechs-outperform-san-franciscos-but-cant-raise-money.jsonld"}}