Investors are being stingy in San Diego.
Cash-poor venture capitalists are consolidating their money into what they believe will yield the biggest payoff — startups in big cities building AI. Now, head south down the California coast to see local life science startups feel the squeeze.
San Diego companies hit a six-year low for fundraising in 2025.
San Diego County startups raised $897 million in the last three months of 2025, down 36% from a year ago — and this was the best quarter of the year.
National numbers tell a different story: In the U.S., venture capital closed over $510 billion worth of deals in the fourth quarter, nearing records set in 2021.
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Out of nearly 15,000 deals completed in 2025, over half of all funding went to just seven companies, according to PitchBook, an industry research firm.
The largest deal of the quarter — San Francisco-based Anthropic’s $14 billion raise — was equal to what every San Diego startup has raised since 2023.
While major cities have always received more money, capital concentration at this level is not like anything Krenn has seen before. “You’ve got all these super wealthy people that are turning our country into an oligarchy,” he said. “Money’s not getting spread out like it used to be.”
Everything’s AI
AI companies dominated the fundraising landscape in 2025, drawing over $3.3 trillion — 45% of total investment this year — with most capital flowing to the Bay Area, New York and Los Angeles, respectively.
Meanwhile, life sciences and health tech startups, the industries that dominate San Diego, were among the smallest raising verticals at $6 billion each.
It’s not like San Diego companies aren’t integrating AI into life science research; it’s just harder, explained Peter Stockburger, partner at Dentons Venture in San Diego. “These systems are predictive and probabilistic by design — they’re making statistical predictions about what comes next. That has expanded what AI can do, but it also raises questions about reliability and trust, especially in regulated sectors like health care,” he said.
Meanwhile, a lack of funding is leading to leaner firms and slower job growth.
Job growth in San Diego’s innovation sector accelerated when venture capital did in 2021. Now, as money dries up, jobs drop off.
“There is a shrinking presence of life sciences companies and jobs in San Diego at the moment,” said Eduardo Velasquez, the vice president of economic development and research at the San Diego Economic Development Council.
Velasquez said cumulative job growth has plateaued or declined from pandemic-era peaks. Professional, scientific and technical service jobs declined 3.3% through November 2025.
“More concerning, it’s not just leaner firms we’re seeing, but fewer firms altogether. Firm growth across these key industries has stagnated, with only defense tech startups providing a bright spot in an otherwise sobering picture,” said Velasquez.
Now, companies are doing more with less.
“We have heard from some businesses directly that they’re finding ways to implement AI tools and technologies to augment their workforce and help support the production and the work that they need to do, despite doing that with fewer people,” said Velasquez.
Krenn concurred. “Theoretically, you can build a company with a lot fewer people, which is great for investors, but bad for employment,” he said.
The liquidity issue
While venture capital firms are spending at record levels, investors fueling the firms are being more selective.
Liquidity is the biggest problem going into the new year, according to the annual PitchBook report.
Investors aren’t putting money into the market because they aren’t getting money out. Nationally, investors haven’t turned a profit since 2022; net cash flows to investors have been negative by $169 billion.
Since money is tied up, investors are being “selective,” says James Zanewicz, CEO of Connect, a major regional innovation organization. “They’re looking at putting more into fewer companies, and they’re still looking a little later stage.”
Late-stage investment accounted for a majority of deals this year, breaking a trend of early-stage investment that accounted for most deals the past few years, according to data from PitchBook. Of the 10 highest-funded San Diego startups in the fourth quarter, eight were later-stage companies.
Companies used to have to have good metrics to get funding, explained Krenn. Now, startups can have “great numbers” and still be out of luck.
San Diego startups that raised capital this quarter
A few San Diego startups proved to investors that they’re worth backing.
Blossom Hill Therapeutics had the largest investment of the fourth quarter — $183 million in a Series B round. The pharma startup is a small molecule drug discovery and development company focused on unmet medical needs in oncology and autoimmune disorders.
Aspen Neuroscience raised $115 million in a Series C round in December, putting it on the podium as one of the highest-funded local startups for the quarter. Aspen Neuroscience leverages stem cell research to treat Parkinson’s disease.
The coastal capital gradient
San Francisco and San Diego both had record years on opposite sides of the spectrum.
Investors are hedging their bets and consolidating capital to a few strong companies.
Historically, VCs would look for unicorns by investing in a bunch of companies, hoping that one goes for billions. Today, investor strategy is more stringent: fewer unicorns, more workhorses.
“I think we’re definitely taking a position where maybe we don’t need to have a home run, but do better across the entirety of the portfolio,” Krenn said. “But definitely better than just hitting singles.”
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