Venture Firms Set Sights Beyond New York --- Competition in the local market and AI deals elsewhere are prompting the shift

“New York venture firms are broadening their geographic reach.

 

San Francisco's resurgence and the frenetic artificial-intelligence dealmaking there is proving irresistible to some New York investors. New York firms have also matured, gaining resources to expand from their backyard -- with both physical locations and a wider investment reach. Meanwhile, the local market has become so competitive that some investors are looking for more deals elsewhere.

 

New York-based Deviation Capital is searching for an office space in San Francisco and planning to double its investment team of two there. Deviation, the firm that Two Sigma Ventures became when it was spun out of hedge fund Two Sigma, has long backed startups in the Bay Area. But the current pace of deals requires a different type of presence now, said Colin Beirne, founding partner of Deviation.

 

"There's so much concentration of talent and network focused on AI that we would be missing out if we didn't have people there on the ground all the time," Beirne said.

 

New York is the second-largest startup market in the U.S. after the Bay Area, but its share of the $20 billion in total seed funding declined last year while San Francisco's soared.

 

New York startups raised $3.4 billion in pre-seed and seed capital in 2025, a 20% increase over 2024 totals, according to Crunchbase. Bay Area startups, meanwhile, drew in $9.1 billion in seed rounds, a 72% surge from the prior year.

 

San Francisco startups hit a multiyear record of 1,404 seed deals last year, while the number of New York seed deals has been declining over the past three years, to 666 in 2025, according to Crunchbase.

 

"You can't ignore San Francisco right now, particularly around AI infrastructure, developer tooling and frontier model ecosystems," said Jonathan Lehr, co-founder and general partner at New York venture firm Work-Bench. Lehr recently made a 24-hour due-diligence sprint to San Francisco and back to meet a founder before offering a term sheet. Work-Bench's portfolio is about 60% New York-based, down from 70% pre-Covid by company count.

 

"That shift isn't because we have less conviction about NYC -- quite the opposite. The NYC enterprise ecosystem has become dramatically stronger over the last decade," Lehr said. "The biggest change over the last few years is that AI has reshaped where different categories of companies tend to emerge."

 

Where New York continues to have an advantage is that it offers proximity to corporate buyers, which is more important than ever, Lehr said.

 

Primary Venture Partners, which invested exclusively in New York via its first two funds before the Covid pandemic, has expanded its geographic purview. Just 30% of the deals in its last fund were New York-based, said Ben Sun, the firm's co-founder and general partner. Another third of its dealmaking is in the Bay Area, and the rest is all over, from Oklahoma to Israel to Finland.

 

When Primary was getting started a dozen years ago, New York was a small startup market, Sun said. After many New York startups went public and reached billion-dollar valuations, competition from other investors increased.

 

"If I'm fishing in a pond that doesn't have any fishermen in it, I can decide which fish to pull. Suddenly, there are 1,000 fishermen elbowing each other and casting lines. That's what happened in New York," Sun said. Primary partners realized: "The alpha is gone," Sun said.

 

That pushed the firm to expand outside of the city. At the same time, Primary raised larger funds, hired a bigger team and developed more tech tools that all enabled it to more easily invest outside of its backyard, Sun said.

 

Meantime, many West Coast VCs are searching for Big Apple deals. Jai Das, president, partner and co-founder at Sapphire Ventures, comes to the city about once a month in search of investments, he said.

 

About a third of Sapphire's deal pipeline is in New York, Das said. Part of it comes from European and Israeli founders who prefer the city when they move stateside, he said.

 

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Yuliya Chernova writes for WSJ Pro Venture Capital.” [1]

 

1. Venture Firms Set Sights Beyond New York --- Competition in the local market and AI deals elsewhere are prompting the shift. Chernova, Yuliya.  Wall Street Journal, Eastern edition; New York, N.Y.. 03 June 2026: B6.