Though it may just be a slip in the rankings, and Massachusetts startups could pull back ahead for the rest of the year, the news comes as the state is dealing with several major challenges. And it continues the narrative of decline for the state that invented venture capital investing and ranked behind only California as recently as 2013, when New York’s position as a capital of finance and media helped it pull ahead.
The Trump administration’s budget and tax cuts, along with wild policy zigzags, have crushed once-surging climate-tech companies and some of the life sciences research that fed the local startup ecosystem. Meanwhile, the AI boom has largely left Massachusetts behind, with a few exceptions and some recent promising efforts to encourage more startup activity in the sector.
Texas has been gaining on Massachusetts for the past few years, after the state successfully wooed some major California tech companies, including Tesla and Oracle, to move their headquarters there. Texas boasts low taxes, business-friendly corporate laws, and a somewhat lower cost of living than California. And the state is strong in two areas that have historically done well in Massachusetts: business software and defense tech.
Last year, Texas startups raised $11.7 billion versus $16.6 billion for Massachusetts companies. The $4.9 billion margin shrank by almost half from Massachusetts’ $8 billion lead in 2024.
In this year’s first quarter, Texas flexed its strength in defense as autonomous boat builder Saronic raised $1.75 billion and satellite communications firm CesiumAstro raised $470 million, while humanoid robot maker Apptronik raised $935 million and restaurant software firm inKind raised $450 million, according to PitchBook and the NVCA. Only wearable-tech startup Whoop in Kenmore Square would have cracked that list with its $575 million fund-raising in March.
Business and political leaders in Massachusetts often fret about graduates from the state’s outstanding colleges and universities moving elsewhere to found companies. California and New York are generally the preferred landing spots in those cases; none of the founders of the largest VC-fund-raising companies from Texas in the first quarter had ties to MIT, Harvard, or other local schools.
While energy and climate startups around Boston are struggling (battery recycler Ascend Elements, which had raised over $1 billion from VCs, filed for bankruptcy last week), Texas remains an energy powerhouse. Other companies there that raised large amounts in the first quarter included Noveon, based in Austin and making rare earth magnets, Utility Global, based in Houston and working on clean hydrogen, and energy storage firm Sage Geosystems, also in Houston.
The Texas-sized haul of VC funding did not include many artificial intelligence startups. As much as Massachusetts has lagged California in producing leading AI companies, Texas has only one, and it’s a transplant. Elon Musk’s xAI startup was founded in San Francisco and later merged with the billionaire’s SpaceX rocket company now headquartered near Brownsville, Texas. (Musk is also planning to build an AI chip factory in Austin.)
Massachusetts’ ranking could rise if the life sciences industry makes a comeback. After several years of decline, biotech firms from Massachusetts are increasingly going public this year, which should refill the coffers of local VC firms. And among local leaders in VC fund-raising in the first quarter of this year, Parabilis Medicines, Atavistik Bio, and Slate Medicines raised almost $600 million combined.
The new private-sector AI effort, dubbed the Massachusetts AI Coalition, could also help the Bay State hold off Texas. The group is holding dozens of live events designed to encourage local students to start AI companies here and support and train those who do.
“We have the best of the best raw ingredients as it relates to entrepreneurial DNA, entrepreneurial talent,” Giuseppe Stuto, a Boston startup founder and VC investor working with the coalition, said at an AI conference at MIT last week. “Like any other ecosystem, we go through cycles of ups and downs, and I think we’re continuing to help.”
Aaron Pressman can be reached at aaron.pressman@globe.com. Follow him @ampressman.
