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In a switch, NY tops San Francisco in venture funding

In a switch, and perhaps for the first time, venture funding for New York metro area startups in the third quarter topped that going to VC-backed San Francisco and North Bay companies, as the heavily financed WeWork gave the Big Apple a boost.

Also in the quarter, Asian mega-round activity, including that in China, eclipsed mega deals in North America. In the third quarter, Asia saw six companies become unicorns with funding rounds that pushed their valuations to $1 billion or more, while North America saw five.

The two milestones reflect the changing dynamics in venture capital as Asia rises and entrepreneurship spreads from its long-time hot bed in Northern California’s Silicon Valley.

While San Francisco found itself in New York’s shadow, venture funding in the traditional Silicon Valley region of San Jose to Santa Clara actually dipped, according to the MoneyTree Report from PricewaterhouseCoopers and CB Insights.

The report is one of several issued on quarterly investment activity and perhaps the most comprehensive. It found U.S. VCs put $19 billion to work in the third quarter, essentially on a par with funding in the second quarter. A separate reported issued by the National Venture Capital Association and PitchBook placed third quarter funding at $21.5 billion, a decline from the second quarter.

According to the MoneyTree data, 162 New York metro area startups received $4.23 billion in the quarter, compared with $4.18 billion going to 239 San Francisco and North Bay companies. The New York total included $2.5 billion of funding for WeWork, part of a $4.4 billion investment from SoftBank that WeWork announced in August.

However, New York’s lead over San Francisco isn’t likely to last. The quarterly funding for San Francisco area companies has averaged $4.4 billion over the past 24 months and New York funding has averaged $2.3 billion.

While New York and San Francisco jostled for the lead, mega deals sprouted in Asia. Thirty-four rounds of $100 million or more took place during the third quarter compared with 28 in North America, the report found. The figures were reversed in the second quarter.

Separately, funding in Q3 for artificial intelligence startups in the United States swept by the $1 billion mark for the third quarter in a row, showing how heated the technology has become for investors, according to the MoneyTree survey.

U.S. companies building businesses around AI raised nearly $1.1 billion in the quarter, down just slightly from the second quarter. Ninety-one deals took place with nearly half in California.

Other than WeWork, the largest deal of the quarter was the $159 million round for Nauto, a Palo Alto-California-based self-driving vehicle tech company backed by SoftBank Group, Greylock Partners, BMW iVentures, General Motors Ventures, Toyota AI Ventures, Playground Global and Draper Nexus.