About the Region

Despite encouraging headlines, a deeper look at VC and employment trends suggests growth remained constrained in Q1 2026.

In the first quarter of 2026, San Diego captured more than $3 billion in VC funding across 36 deals, nearly reaching the $3.6 billion total raised in 2025. However, Shield AI, an aerospace and defense technology company that develops autonomous military assets, captured the lion’s share of Q1 funding at $2.25 billion. It’s a déjà vu moment for San Diego; Q1 2025 also saw Shield AI bring in the largest investment of the quarter, to the tune of $240 million. Excluding Shield AI in both quarters, underlying VC activity appeared relatively unchanged year-to-year, with approximately $776 million in Q1 2025 and $771 million in Q1 2026.

VC funding can provide insight into the pulse of the economy, indicating potential areas of innovation, business sentiment, and signal sectors for employment growth. Globally, investment in AI startups continued to grow, with Q1 2026 AI investments surpassing total combined AI funding in 2025. However, over two-thirds of global AI startup funding in Q1 2026 was concentrated among three companies—OpenAI, Anthropic, and xAI—and 77% of total global funding was in AI startups. While this trend signals the growing interest in AI, the narrowing dispersion of investments may obscure the signal of potential broader economic impacts.

Here at home, the technology continued to shape San Diego’s investment landscape, whose deals also appear highly concentrated in AI. Across 36 local deals in Q1 2026, 12 were AI-related investments, ranging from seed funding to advance discovery of hidden cancer targets to investment in a financial intelligence platform for life sciences. Still, Shield AI’s landmark deal, 80% of the region’s Q1 2026 funding, reflects a strategic but narrow focus on defense and autonomous systems. Though these large investments can appear encouraging, hyper-focused investment patterns may obscure ongoing economic uncertainty.

San Diego’s broader labor market reflected a similarly uneven story of growth. From March 2025 to March 2026, regional employment grew, adding 15,100 jobs year-over-year. However, this growth continued to be highly concentrated in lower-wage sectors. Healthcare and social assistance led gains with 16,400 new jobs, with ambulatory healthcare services accounting for 7,800 of those added jobs, and leisure and hospitality added 7,100 jobs. The region saw slight progress in professional and business services, which experienced modest gains after prior years of decline—notably, scientific research and development services added 100 jobs year-over-year after declining by 2,500 from 2024 to 2025. Manufacturing, information, and government sectors, however, continued to lose jobs.

All in all: Despite encouraging numbers on the surface, a closer look at San Diego’s investment and employment indicates an environment where meaningful, long-term economic prosperity that could translate to job growth remains constrained.

What we’re watching in Q2 2026:

While VC can offer a long-term glimpse at San Diego’s next economic priorities, the question will ultimately be whether—and how quickly—these investments will create the quality-wage jobs that regional talent needs to thrive.

The urgency is growing: As median home prices hit $1.07 million in April 2026, San Diego Foundation’s Unity Fund separately committed $750,000 in grants to meet immediate regional household needs such as housing, healthcare, and food, and San Diego State University broke ground on an affordable housing neighborhood at its Mission Valley development with Chelsea Investment Corporation. Affordability challenges left unchecked, our region risks losing the top talent that drives our economy.