The landscape of innovation in America is undergoing a significant shift, contrary to popular belief. While there has been speculation about the decline of coastal tech hubs like the San Francisco Bay Area and Boston, these regions continue to play a crucial role in venture capital investment in high-tech startups. However, the tremendous increase in VC funding has also paved the way for the emergence of viable startup ecosystems across the United States, particularly in the heartland.
A recent study conducted by myself and Karen King from the University of Toronto, and published by Heartland Forward, delves into the changing geography of venture capital-financed technology. The study compares the volume and growth rate of VC investment in the 301 metropolitan areas that received VC funding between 2019 and 2021 with the pre-pandemic period of 2009-2011. We paid particular attention to the 126 metros situated in what we refer to as the American heartland, encompassing 20 states in the central part of the country.
Despite various factors such as skyrocketing real estate prices, the impact of the Covid-19 pandemic, and other challenges faced by traditional tech strongholds, the dominance of a few metropolitan areas remains largely unchanged. It is remarkable to observe the concentration of venture capital dollars and deals in these selected hubs.
The San Francisco Bay Area alone accounts for over a quarter of all venture capital investment, with the broader Bay Area, including San Francisco and San Jose metros, making up more than a third of the national total (which rebounded to 41% in the first quarter of 2023 after a temporary dip during the pandemic). Furthermore, the Acela Corridor on the East Coast, stretching from Boston to Washington, D.C., claims nearly 30% of venture capital investment. In total, the top five metros for VC funding – San Francisco, New York City, Boston, San Jose, and Los Angeles – encompass more than two-thirds (67.5%) of all VC investment.
In comparison, the 100-plus metros within the heartland region receive only 9% of total venture capital investment, down from 14% a decade ago. However, three prominent tech hubs – New York City, San Francisco, and Los Angeles – have witnessed substantial growth in their share of VC investment over the past ten years. Interestingly, no other metro succeeded in increasing its share by even one percentage point. Despite Miami's reputation as a rising high-tech startup hub, its growth was a mere 0.1%.
Nonetheless, the surge in venture capital investment has had a significant impact on the development of robust and viable startup ecosystems across numerous metropolitan areas. Almost 80% of all U.S. metros – a staggering 301 out of 384 (78.3%) – received VC funding between 2019 and 2021. In the heartland region, VC investment more than tripled, surging from approximately $15 billion in 2009-2011 to $55 billion in 2019-2021. Currently, three-quarters (75.4%) of heartland metros (126 out of 167) receive venture investment, with 30 of them surpassing the national average growth rate for VC funding.
This significant increase in venture capital investment has propelled 11 metros to levels comparable to or even surpassing those of Silicon Valley or Boston-Cambridge during the mid-1990s, when adjusted for constant 2020 dollars. Metros such as New York City, Boston-Cambridge, and Los Angeles now boast several times more VC investment than Silicon Valley did in the '90s. Additionally, Chicago, Austin, Washington D.C., and Philadelphia currently have levels of VC funding similar to what the Valley experienced in 1995. Additionally, Atlanta, Dallas, Denver, Minneapolis-St. Paul, Miami, Salt Lake City, and Phoenix have more VC investment now than Boston-Cambridge enjoyed in the 1990s.
Moreover, when analyzing VC investment on a per capita basis, the San Francisco Bay Area still leads, with San Francisco and San Jose taking the top spots. However, some smaller locations have managed to punch above their weight. Boulder has outpaced Boston, while three metros, including Carson City, Nevada, boast per capita venture investment ranging from $5,000 to $10,000. On average, across all metros, venture capital investment per capita stands at $1,843, on par with Washington, D.C., and Raleigh in the North Carolina Research Triangle.
The exponential growth in venture capital has coincided with the expansion of innovative activity across different geographic regions. Viable high-tech startup ecosystems can now be found in a growing number of metros throughout the country, ranging from large cities to small college towns. This geographic spread of innovation bodes well for the United States, as high-tech advancements are key drivers of quality economic growth.