Tech startups in San Diego are spending quite a bit less than their peers in other innovation hubs around the country — not only in expensive cities like San Francisco, but also in affordable cities like Austin, Texas.
That’s according to a new report by fast-growing financial firm Brex, which provides corporate credit cards to startups. The San Francisco firm has ballooned into a billion-dollar business in just two years of operation. Now, it’s publishing data to help other startups gauge their performance compared to peers. The company analyzed the spending habits of its clients — mostly startups operating in technology. They discovered tech startups were concentrated in nine distinct regions: San Diego, Austin, Boston, Los Angeles, New York, Seattle, and three subgroups of the San Francisco Bay Area (San Francisco, the outer Bay Area and Silicon Valley).
Of those top tech regions, San Diego startups appear to be burning the least amount of money per month. San Diego startups spend about $207,000 per month, the report says. By comparison, startups in up-and-coming tech hub Austin spend about $281,000 per month to operate. In San Francisco, where tech companies are known to have high expenses, startups are spending $369,000 per month.
Low burn rate — good or bad?
While a lower burn rate might seem good for business, Brex data scientist Chris Read said their data show a higher burn rate is also tied to higher quality investors, and — down the road — more growth.
“We found that the top startups (ones with top-tier VC backing) tend to spend more than other startups,” Read said.
Companies that raise venture capital tend to be growing fast enough to warrant investment dollars, which can then be used to support their growth. Larissa Rocha, a founding employee at Brex, said startups that “graduate” on to raise additional rounds of cash tend to have a bigger cash burn than those that did not.
How did Brex come up with this data?
The company has startup clients all over country, focusing in on software and technology. They have access to those spending habits — and due diligence data that qualifies the company for a line of credit. Brex declined to publicly disclose the number of companies it analyzed for this report, citing privacy concerns for its clients. However, Read clarified that regions were only included if there was enough data to merit “statistical significance” in the report.
The company said its data does not include biotech clients at this time, so those startups — known for their big spending — are not included.
(Article written by Brittany Meiling)