Before his company opened its Series B funding round last year, Elad Schaffer, co-founder and CEO of Faye, heard from a large venture capital fund. Could he meet with them the next day in San Francisco?

It was a 14-hour flight for Schaffer, who lives in Tel Aviv, Israel, but splits his time between there and the United States. Though the Richmond-based travel insurance startup already had interest from several investors, Schaffer decided to make the trip, “regardless of what that meant to my jet lag,” he says.

The investor ultimately decided to pass on Faye’s latest round, but Schaffer has no regrets.

“We felt we had to exhaust all the conversations and give everyone a fair shot, which is oftentimes, I think, the challenge with these processes,” Schaffer says. “You want to make sure that you know as much as you’re putting in the time, the serious investors, they put in the time as well.”

Faye, which has produced an app to help people purchase travel insurance quickly and easily, announced in July 2024 that it had raised $31 million in its Series B round — a time when proven companies raise capital to develop market shares beyond its initial development stage.

Led by Toronto-based Portage with participation from four additional funds, including three that had previously invested in the startup, the company plans to release more products and grow to about

80 employees, up from about 50. These include roles in operations, claims, human resources and customer experience. Schaffer says Faye also plans to find a new home office in the city to help contain that growth. “We’re ramping up.”

Venture capital investment in Virginia companies reached $1.8 billion in 2024, according to data from PitchBook and the National Venture Capital Association.

That’s down from about $2.5 billion during 2023, which mirrors national trends, says Joe Benevento, president and CEO of the Virginia Innovation Partnership Corp., a state-run nonprofit overseeing commercialization and funding of startups.

Nationally, venture capital has recalibrated itself from the headier days of 2021 and 2022, Benevento says, when there were more funds. Now, some of those funds have been concentrated at established companies, and there’s greater investment in artificial intelligence startups today.

“These AI companies actually require a lot of capital to build out, to scale, to continue to grow… so a lot of money has been deployed, and there’s an opportunity to deploy a lot of money there too,” he says.

In Virginia, seed and early-stage funding has grown 14% over the past year, from $626 million in 2023 to $717 million in 2024, and the state ranks No. 14 in those funding categories, according to PitchBook. Benevento notes that Virginia’s seen a boom in startups during Gov. Glenn Youngkin’s term, which started in 2022. Nearly 13,000 high-growth and high-wage businesses have launched between January 2022 and July 2024, surpassing the governor’s goal of 10,000 new startups, according to data provided to VIPC by Richmond’s Chmura Economics & Analytics.

According to Chmura’s report, 70% of new Virginia startups were still active in the first quarter of 2023. To be considered a startup, a company has to offer above-average wages for Virginia and a higher-than-average forecasted employment growth rate.

“The undercurrent, I think, is actually very, very positive. … We’ve seen that capital attraction for that seed and early stage where that innovation and entrepreneurship is thriving and capital is actually coming in, and the vast majority of that investment capital, by the way, is coming in from out of state,” Benevento says.

To that end, Virginia has been a focal point for outside investors. Startup World Cup, a global conference and pitch competition run by Silicon Valley-based venture capital firm Pegasus Tech Ventures, hosted an event in Virginia Beach last summer and is planning its second event in August.

Newport News-based ivWatch, a medical device and sensor company, advanced to the global competition’s final round in San Francisco to compete for a $1 million prize, placing third.

Startup Runway, a pitch competition for early-stage companies led by underrepresented founders, also visited Virginia for the first time in September 2024, with a competition in Richmond.

Inside the state, last year VIPC launched Virginia Invests, a partnership with seven venture capital funds, to invest $100 million in 100 state-based startups. That could expand further, Benevento says.

“All of those fund partners that we initially have started out the gate with here, again, that is basically building the pipeline, where they are committed to investing in Virginia-based startups through their funds. And what they bring along is their co-investor networks.”

Gaining traction

Just as AI companies have taken off in Silicon Valley, Northern Virginia’s AI-powered startups typically rake in more investment dollars.

Last spring, McLean’s Zephyr AI, which uses artificial intelligence to predict a patient’s drug response, raised $111 million in a Series A funding round from 30 investors, including pharmaceutical giant Eli Lilly and Washington, D.C.-based Revolution Growth, a venture capital firm started by AOL founder Steve Case that funds startups outside of Silicon Valley.

Other notably large funding rounds from 2024 include Arlington County’s Lightshift Energy, which raised $100 million from Greenbacker Capital Management, on top of a $20 million investment in 2021. Washington Harbor Group invested $60 million in Reston’s Raft, which builds data and AI solutions for the federal government.

McLean-based Defcon AI CEO and co-founder Yisroel Brumer says his company will use $44 million raised in a seed round led by San Francisco-based Bessemer Venture Partners, announced in August 2024, to focus on execution. The company delivered its first product, ARTIV, a cloud-based logistical planning and training tool that simulates real world scenarios, to the Air Force that same month.

Brumer, who co-founded Zephyr, says Defcon’s round was oversubscribed, meaning that the company was offered more money than it sought, which underscores its perceived value to investors.

“It came down to Bessemer plus a small number of investors who we consider very strategic and important,” Brumer says. Although it’s not clear yet how President Donald Trump’s second term could impact business for govcon startups, some are likely to be affected as standards change.

In week one, the Trump White House ordered the directors of the federal Office of Management and Budget and Office of Personnel Management to terminate all grants or contracts related to diversity, equity, inclusion and accessibility awarded under President Joe Biden, as far as that’s legally possible.

Trump also rescinded Biden’s executive orders directing federal agency heads to review and report on potential barriers to “full and equal participation in agency procurement and contracting opportunities.” Moving forward, green energy and climate-focused businesses will see fewer opportunities under Trump, and small business set-asides — especially those targeted toward businesses owned by women or minorities — could decline, although that would require either an act of Congress or could be challenged in federal courts.

Mark Frantz, general partner and co-founder of McLean-based Blue Delta Capital Partners, a venture firm that focuses on the federal market, predicts 2025 will continue along the same path as last year, with larger rounds driven by non-regional investors. Virginia’s venture capital ecosystem, he adds, is impacted by proximity to the federal government, which can be more “capital efficient” for companies that may get early momentum selling to federal customers, allowing them to bypass or postpone raising venture capital to grow.

“It’ll focus, again, around things like cybersecurity software,” Frantz says. “I think that leads the category for us every year.” Frantz also points out: “We’re not the Valley.”