Venture capital is the fuel that powers high-tech innovation and entrepreneurial startup companies. Previous research has been hampered by a lack of data, or more specifically, by the availability of only highly aggregated data at the state or metro level. This study overcomes this hurdle by using more detailed zip code-level data to identify microclusters of venture capital investment and startup activity at the neighborhood level.
Its main findings are as follows.
The top 20 neighborhoods or zip codes for venture investment include nine in San Francisco, five in San Jose, three in Boston-Cambridge (one in suburban Waltham and two in Cambridge close to MIT) and one each in San Diego (close to the University of California, San
Diego), Dallas, and New York (close to New York University).
These top 20 neighborhoods account for more than $10 billion, nearly a third of the total venture capital. Furthermore, less than one percent (0.2 percent) of all zip codes, or 83 zip codes, attracted more than $100 million in venture capital investment. These neighborhoods account for 60.7 percent of all venture capital investment.
There are two billion dollar venture capital neighborhoods, both in downtown San Francisco: South of Market/Mission District (94103) and Rincon Hill (94105). Palo Alto, neighboring Stanford University, is a close third with $988 million in venture capital investment. Three more neighborhoods – two in San Francisco and one in San Diego, close to the University of California, San Diego, received more than half a billion in venture capital investment.
When it comes to industry, venture capital investment breaks down as follows.
Software: Fifteen of the top 20 neighborhoods are located in the San Francisco Bay Area, eight in San Francisco and seven in San Jose. These top 20 zip codes account for $5.2 billion or 43.5 percent of all software investment.
Biotech: Eight of the top 20 neighborhoods are located in San Francisco, five in Boston, two in San Diego, and two in Washington, D.C. Venture investment in biotechnology is often located near universities or research centers. These top 20 neighborhoods account for $3 billion or over half of all biotech investment.
Media and Entertainment: Six of the top 20 neighborhoods are located in San Francisco, four are located in New York, three in San Jose, and two in Los Angeles. These top 20 neighborhoods attract nearly $2 billion or nearly two-thirds (62.9 percent) of all venture investment in media and entertainment.
Medical Devices: Three metros — San Francisco, Boston-Cambridge, and Los Angeles — each have three neighborhoods in the top 20. These 20 leading neighborhoods attract $1.1 billion or nearly half (46.5 percent) of all venture investment in medical devices.
Information Technology Services: Eight of the top 20 neighborhoods are in San Francisco with three each in San Jose and New York. These top 20 neighborhoods attract more than $1 billion or over half of all venture investment in information technology services.
Comparing these industries, neighborhood-level venture capital investment shows clear evidence of an urban shift back to downtown areas, while investment in biotechnology is more clustered around major universities and research institutes.
Venture capital investment and startup activity are spiky — tightly concentrated not just in cities and metro regions, but in distinct neighborhood micro-clusters across the United States.
Download this Report (PDF)
Exhibit 2: Top 20 Zip Codes by Venture Capital Investment
|Rank||Zip Code||Neighborhood||Metro||Venture Capital Investment*||Share of Venture Capital Investment|
|1||94103||South of Market / Mission District||San Francisco||$1,057||3.20%|
|2||94105||Rincon Hill||San Francisco||$1,004||3.04%|
|3||94301||Palo Alto||San Jose||$998||3.02%|
|4||94107||Potrero Hill / Dogpatch / South Beach||San Francisco||$885||2.68%|
|5||92121||Sorrento Valley||San Diego||$568||1.72%|
|6||94080||South San Francisco||San Francisco||$501||1.52%|
|8||94104||Financial District||San Francisco||$481||1.45%|
|9||94025||Menlo Park||San Francisco||$426||1.29%|
|10||94043||Mountain View||San Jose||$402||1.22%|
|11||94041||Old Mountain View||San Jose||$392||1.19%|
|12||94063||Redwood City||San Francisco||$378||1.14%|
|13||02139||Cambridge / MIT||Boston-Cambridge||$377||1.14%|
|14||94065||Redwood Shores||San Francisco||$369||1.12%|
|18||95054||Santa Clara||San Jose||$313||0.95%|
|19||10012||Soho / NYU||New York||$310||0.94%|
|20||94111||Financial District / Embarcadero||San Francisco||$306||0.93%|
|Top 10 Zip Codes||$6,807||20.60%|
|Top 20 Zip Codes||$10,291||31.14%|
*In millions of U.S. dollars