The Urban Shift in the U.S. Start-Up Economy, in One Chart

Walkable suburbs and center city companies are dominating the tech scene.

Image
Shutterstock/Songquan Deng

San Francisco’s SoMa neighborhood; Cambridge, Massachusetts’ Kendall Square; Lower Manhattan: These are the dense, walkable neighborhoods that have become the new hubs of America’s tech scene, as the center of gravity for venture investment and start-up activity shifts from suburbs to urban centers.

This urban shift in America’s venture capital-fueled innovation economy is detailed in my latest report from the Martin Prosperity Institute, released today at The Atlantic’s Start-Up City: Miami event. (The report builds upon and deepens the analysis developed initially in my Start-Up City series here on the site last year).

The chart below, from the new report, shows just how extensive the urban shift in venture capital investment and start-up activity has become. It is based on detailed zip code data provided to us by Dow Jones for the year 2011. The data cover 11 metros and two combined areas, the San Francisco Bay Area and Washington-Baltimore. Together, start-ups based in these metros accounted for almost three-quarters of venture capital investment in 2011.

The chart groups venture investment according to three key geographic categories: the center or main city (orange), walkable suburbs (brown), and “other” suburban locations, generally known as ‘nerdistans’ (blue). The comparison is not perfect, of course, as zip codes can span different kinds of areas and city boundaries can include a variety of neighborhood types, but it clearly shows the broad geographic pattern.

Taking walkable suburbs into account—and acknowledging that many close-in, transit-accessible, and dense places lie outside the city limits—brings the urban tech shift into even sharper focus. Companies in Boston and neighboring Cambridge attracted more than half (53.5 percent) of the regional venture investment. Adding in the mixed-use suburbs of Arlington, Alexandria, and Bethesda outside of Washington, D.C. brings the total urban-oriented venture investment for the Baltimore-Washington region to more than 60 percent. And similar trends are evident when we combine walkable Palo Alto with the city of San Jose in Silicon Valley, and Santa Monica with Los Angeles in Southern California.

The Bay Area, long the center of America’s tech industry, exemplifies this urban shift. This was once the paradigmatic suburban nerdistan based in the corporate campuses of Silicon Valley. But today San Francisco pulls in more venture capital than the Valley itself. And together more than half of the venture capital investment in the combined San Francisco and San Jose metro areas went to either center cities or walkable suburbs. The city of San Francisco – which attracted more than 50 percent of its metro areas venture capital – is the epicenter of this urban growth. The newly renovated headquarters of Yelp in downtown San Francisco, which Alexis Madrigal cataloged for the The Atlantic a few weeks ago, is one exemplar of this urban tech resurgence.

New York too signals the shift to urban technology. It has surged to become a member of the top three venture capital centers, attracting more than $2.5 billion in venture capital investment in 2011. An astonishing 80 percent of this money went to companies near the urban core, mainly in lower Manhattan.

Several trends lie behind this urban shift. Firms want access to talent, and talented people like to cluster in dense urban areas with thick labor markets, abundant amenities and services, and a vibrant social life. Density is also much more efficient for young companies who want to rent cheap office space and offer employees access to the amenities like gyms, restaurants, and coffee shops that they’d have to provide for themselves on a suburban campus. And these companies can now thrive in smaller urban spaces, as much of tech is increasingly focused on software, apps, and social media, which do not require large campuses.

There have, of course, also been negative consequences of this urban shift in venture capital. The debates over increasing unaffordability in the Bay Area are based on very real issues, though they've ended up focused on the private bus services that Google and other companies use to shuttle workers from their homes in the city to their offices in Silicon Valley. (It should also be noted that a new survey from the Bay Area Council indicates that at least some of this bus-based hype is overblown.)

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This week at Start-Up City: Miami, I’ll discuss the urban tech revolution with Miami Beach Mayor Phil Levine, who earlier this winter seemed skeptical of the idea that his city could be a tech hub. (He called it “the dumbest idea in the world.”) But Levine himself is a successful business leader, and he is committed to making Miami Beach a place that is attractive to world class, entrepreneurial talent and offers world class quality of place.

In fact, greater Miami and South Florida have seen a substantial uptick in venture capital and start-up activity over the past several years. Greater Miami took in $300 million in venture investment in 2013. And the South Florida mega-region, which includes Orlando and Tampa, hauled in $600 million in venture capital investment, putting it among the top dozen leading regional centers for venture investment.

Miami is also seeing the beginnings of the urban start-up shift. Even as suburban powerhouses like Boca Raton remain strong, downtown Miami, the adjacent areas of Brickell, and walkable neighborhoods like Coconut Grove are attracting considerable venture capital investment.

Top Image: Downtown Miami, a new hub of urban entrepreneurship (Shutterstock.com/Songquan Deng).

About the Author

  • Richard Florida is Co-founder and Editor at Large of CityLab.com and Senior Editor at The Atlantic. He is director of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU. More
    Florida is author of The Rise of the Creative ClassWho's Your City?, and The Great Reset. He's also the founder of the Creative Class Group, and a list of his current clients can be found here