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As contained in the annual updates from Pitchbook, venture capital activity in 2021 soared to new levels in spite of the pandemic conditions and likely in part because of them as shifts to telework and other changes quickly expanded the operational flexibility for these companies. Pitchbook reports that US venture capital deals increased 40% to just over 17,000, while the value of these deals nearly doubled to $330 billion.
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This spike in overall venture capital activity and in particular exits has had a direct and significant effect on state revenues. Rather than the large deficits assumed in the 2020-21 Budget Bill, the state instead has seen large budget surpluses and record revenue levels as the result of this upswing in its increasingly volatile revenue base. The rapid shift of tech and other businesses to telework and other operational changes largely sheltered higher income workers from the effects of the state ordered shutdowns. Capital gains from both IPOs and the previous stock market highs contributed heavily to the surging surpluses.
This rise in state tax revenues is easily outpacing the rest of the nation, and in fact, tax revenues in California have grown more strongly than in the other states nearly every year since the beginning of the previous recovery after 2012. California tax revenues have grown both as the revenue base has produced more and as the state has increased the number and rates of taxes in this period.
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