March 31, 2014
High tech startups are taking an urban turn. Manhattan and Brooklyn, downtown San Francisco, and Santa Monica are all becoming tech hubs. This is a new development. While large urban centers have historically been sources of venture capital, the high tech startups they funded were mainly, if not exclusively, located in suburban campuses in California’s Silicon Valley, Boston’s Route 128 corridor, the Research Triangle of North Carolina, and in the suburbs of Austin and Seattle. But high tech development, startup activity, and venture investment have recently begun to shift to urban centers and also to close-in, mixed-use, transit-oriented walkable suburbs. This report, which is based on unique data from the National Venture Capital Association, Thompson Reuters and Dow Jones, examines this emergent urban shift in high tech startup activity and venture capital investment.
The key findings are as follows.
- Bay Area still on top: As a whole the San Francisco Bay Area — which includes greater San Francisco and Silicon Valley — accounted for more than 4 in 10 of all venture capital dollars invested across the entire United States.
- The city of San Francisco leads the way: San Francisco proper now attracts a larger volume of venture capital investment than Silicon Valley.
- East Coast Acela Corridor ranks 2nd: The Boston-New York-Washington corridor on the East Coast has emerged as the second major center for venture capital investment.
- New York City is a rising startup hub: Metro New York is now the nation’s third largest center for venture capital. Nearly 80 percent of the metro’s venture investment was invested in the city itself.
- College towns attracting venture capital too: College town tech hubs like Austin and Raleigh-Cary in the North Carolina Research Triangle have long been magnets for venture capital, but Boulder, Ann Arbor, and Lawrence, Kansas attract considerable venture capital on a per capita basis as well.
- Talent matters: Venture investment tracks the geography of talent, especially the percentage of adults who are college grads and the creative class.
- Eds and meds don’t matter for tech: While many states and cities have pinned their hopes on education and medical centers, our research finds little to no significant statistical associations between eds and meds employment and venture capital.
- Tolerance does matter: We find venture capital investment to be associated with several markers of the diversity of metros, including their shares of immigrants and gays.
When combined with walkable, mixed used suburbs, urban centers account for substantial shares of venture capital investment in most leading high tech metros. Suburban high tech is not going away — established companies that need large footprints will continue to occupy suburban campuses. But the newest and most innovative developments in the industry are likely to emerge from urban and urban-like locations.