Report: Arkansas VC investment surged 117% in 2022

The 2022 Arkansas Capital Scan, released Wednesday (Dec. 6) by the Northwest Arkansas Council, shows a substantial uptick in venture capital to Arkansas-based startups. Since 2020, there has been an impressive annual quadrupling of venture capital dollars, underscoring a growing interest in the state’s entrepreneurial ecosystem.

According to the report, venture capital investments in Arkansas totaled $270.8 million across 26 companies in 2022 — a 117% increase from the previous year. Northwest Arkansas continued to drive most of the funding, representing 65.4% of all deals in the state.

However, Arkansas falls behind many states in comparison. According to the report, non-coastal states like Michigan, Ohio and Utah, for example, attract billions of dollars in venture capital funding each year. Additionally, angel investments, sourced from individual investors rather than venture capital firms, exhibited a declining trend, trailing behind the levels seen in neighboring states.

“This important research underscores the significant investments being made to develop a community of founders and investors in Northwest Arkansas, but we have a long way to go,” Nelson Peacock, president and CEO of the Northwest Arkansas Council, said in the release. “We’re striving to make Northwest Arkansas one of the best places in the country for startups, and this report provides important tools for Arkansas leaders to consider to develop effective policies and strategies to drive innovation and economic success across the state.”

In its third year, the Capital Scan project was developed in partnership with the University of Arkansas Office of Entrepreneurship and Innovation with a grant from the Walton Family Foundation. It aims to shed light on the availability of early and growth-stage capital for Arkansas-based startups and small businesses, painting a picture of Arkansas’ economic resilience and evolving investment landscape.

“The goal of the report is to quantify an understanding of the availability of capital across the state, as many of the policies and incentives that support entrepreneurship are statewide,” said Sarah Goforth, executive director of the Office of Entrepreneurship and Innovation at the UA’s Sam M. Walton College of Business. “And while not all small businesses and startups are seeking venture capital or bank loans, the flow of capital to early-stage companies is a good proxy for the health of an entrepreneurial community.”

KEY ECONOMIC HIGHLIGHTS
Despite global trends indicating a decline in equity-based investments, Arkansas saw exceptional growth, including a 47.9% increase in business applications compared to 2019. Changes to state tax regulations in 2022 also reduced individual and corporate income tax rates, positioning Arkansas as having the fourth-lowest cost of doing business in the country.

Two years after the onset of the COVID-19 pandemic, Arkansas’ growth continued, surpassing the recovery boom of 2021. More than $270.7 million in institutional venture capital was invested into 26 Arkansas-based startup companies in 2022, compared with $16.4 million in 2020 and $127.4 million in 2021.

These investments supported a diverse range of industries, with notable growth in the advanced mobility, agriculture, and fintech sectors. Of the three comparator states analyzed in the report (Tennessee, Missouri, and Oklahoma), only Oklahoma saw growth in later stage venture capital activity between 2021 and 2022.

At the same time, investment at the earliest stages slowed in Arkansas in 2022 and across all comparator states. Just over $17.7 million in angel investment was deployed in Arkansas in 2022, compared with $55.3 million in 2021. The average deal size also decreased by 60%, reflecting changes in funding dynamics. Despite challenges, key sectors such as consumer products and services, information technology and health care received notable early-stage investments.

Businesses founded by women and people of color received less than their counterparts as well, highlighting the need for inclusive growth strategies to ensure equitable distribution of venture capital.

REGIONAL INSIGHTS
The report shows significant regional variations in capital access, indicating that Northwest and Central Arkansas dominated the angel/seed investment scene with 95% of all deals in the state.

Northwest Arkansas-based companies also received the lion’s share of investment at the later stages of institutional venture capital, totaling $207.9 million. Central Arkansas-based companies received a total of $62.9 million in investment. No institutional venture capital investments were reported in other regions of the state.

The report also includes a special section on crowdfunding, showcasing a 92% increase in funds raised in 2022 compared to the previous year. Crowdfunding campaigns in Arkansas, totaling $2,832,300, exemplify the accessibility and attractiveness of this relatively new funding avenue for entrepreneurs.

For a PDF of the 76-page report, click here.