New zip code analysis shows a concentration of urban investment along the Boston-Washington corridor.
The East Coast has long lagged behind Silicon Valley and the Bay Area as a center for startups and venture capital investment.
The Route 128 corridor outside Boston remained a distant second to the Bay Area in the 70s and 80s because its stodgy, hierarchical culture was less able to adapt to new technology, University of California at Berkley's AnnaLee Saxenian has argued. Further south, New York City has been a source of venture capital finance since the industry's birth, but it mainly exported these resources to startups in the Bay Area and Route 128. And Washington, D.C., the southern end of the productive Boston-Washington corridor, has largely been known as a government town, with its modest tech scene clustered in the Virginia and Maryland suburbs.
But the past several years have seen a substantial shift. New York has risen dramatically as a venture capital center; venture capital and startup activity in greater Boston have shifted from the suburbs to urban neighborhoods in the center city and around MIT. Washington D.C., has transformed into a growing startup hub as well.
Last week, I looked at the geography of startup activity and venture capital investments in San Francisco and Silicon Valley. Today, I look more closely at the venture capital and startups across the Boston-N.Y.-Washington corridor.
To get at the geography of venture capital investment along the Bos-Wash corridor, I use zip code level data made available to us by Dow Jones for 2011. These data enable us look closely into the location of venture capital investment in cities and suburbs across the Bos-Wash corridor. The Martin Prosperity Institute's Zara Matheson mapped the patterns.
The rise of New York as a venture capital center has been nothing short of astounding. Today, Greater New York is the nation’s third largest center for venture capital financed startups, attracting $3.1 billion in funding in 2011, behind only the Bay Area and greater Boston (see below). Nearly 500 (486) startups received funding in New York City between 2007 and 2011 — 15 of them more than $50 million, 27 at least $25 million, and 81 $10 million or more, according to the New Tech City report.
The map above shows the pattern of venture capital investments across Greater New York. While investment crosses the whole tri-state area, there is a significant clustering and concentration in and around lower Manhattan, from Midtown south through Chelsea (where Google is located in the old Port Authority Building) down through the Village, Soho and Tribeca, and across into Brooklyn.
The table below shows the striking prominence of Manhattan in the tri-state area's startup scene.
|Top Ten Zip Codes for Venture Capital Investment in Greater New York|
|Rank||Zip Code||Neighborhood||City||Investment (millions)|
|1||10016||Murray Hill, NYU School of Medicine||New York||$357|
|2||10010||Gramercy Park||New York||$275|
|3||10012||SoHo, Nolita, NYU||New York||$251|
|4||10003||Gramercy Park, Union Square, NYU, NoHo||New York||$217|
|5||10018||Bryant Park, Garment District, Hell's Kitchen||New York||$210|
|6||10011||Chelsea, West Village||New York||$161|
|7||10013||Tribeca, Chinatown||New York||$145|
|8||10001||Chelsea, Koreatown, Penn Station||New York||$136|
|9||08807||Suburban Bridgewater||Bridgewater, NJ||$121|
|10||10014||West Village||New York||$79.9|
All but one of the top 10 zip codes for venture capital investment are located in midtown or lower Manhattan, spanning Murray Hill, Gramercy Park, Bryant Park, Chelsea, Soho, Noltita and the West Village. The only zip code outside Manhattan is Bridgewater, New Jersey.
New York provides a classic illustration of the shift to from traditional suburban nerisdtans to what I have dubbed urban tech. Almost 80 cents (77.7 percent) of every dollar of investments are located in primarily urban zip codes.
Greater Boston is the second leading center for venture capital investment nationwide, attracting $3.3 billion in funding in 2011, trailing only the Bay Area. Home to the nation's first venture capital firm, American Research and Development, high-tech in this region also developed along the lines of the classic suburban nerdistan, with companies like Digital Equipment Corporation, Data General, Thermo Electron, and many others spread along the Route 128 beltway outside the city.
But that has changed. The map above shows the venture investment pattern for the greater Boston region. While it still extends far out into the suburbs, there is a substantial concentration in the urban core, especially in and around downtown Boston and in Cambridge near the MIT campus. The startup hubs of Boston follow the major transit routes, especially the MBTA's Red Line, with key clusters around emerging in neighborhoods surrounding its stations.
The zip code data reveals just how strong this shift has become in the Boston area. The table below lists the top 10 zip codes for venture capital investment in 2011.
|Top Ten Zip Codes for Venture Capital Investment in Greater Boston|
|Rank||Zip Code||Neighborhood||City||Investment (millions)|
|1||02139||Central and Kendall Squares, MIT||Cambridge||$530|
|3||02142||Kendall Square, MIT north of Mass. Ave.||Cambridge||$384|
|5||02210||Waterfront: Seaport District, Fort Point Channel||Boston||$152|
|8||02472||Watertown, East Watertown||Watertown||$114|
|9||02116||Back Bay, Copley Square||Boston||$81|
|10||02141||Lechmere Square, East Cambridge||Cambridge||$76.7|
Two Cambridge zip codes around MIT in Kendall and Central Squares account for roughly $900 million in venture capital investment, almost a third of greater Boston's total. Downtown Boston accounts for three of the top ten zips, spanning Back Bay, Copley Square and the Seaport District. Another leading zip code is located in East Watertown, an older industrial community that abuts Cambridge. Just three of the top ten zip codes are in the traditional Route 128 area suburbs — one in Waltham, one in suburban Bedford and one in suburban Lexington.
Cambridge has surged past Boston as the region's number one jurisdiction for venture capital, with $1.1 billion in investment compared to the city of Boston's $669 million. All in all, predominantly urban zip codes accounted for roughly three quarters (73 percent) of the region's total venture investment.
When most people think of Washington, D.C. metro, they think of government. But the region ranks as the nation's fifth leading center for venture investment according to our zip code level data, attracting $1.1 billion in 2011. (Note that greater Washington D.C. does significantly better based on the 2011 zip code data than in a previous post that covered 2012 metro data. This reflects a few unusually high value deals that occurred in downtown D.C. in 2011. The investment in one urban zip code, 20005, in 2011 was larger than that for the entire metro for 2012).
High tech in greater Washington has long exemplified the suburban nerdistan model, with AOL in Northern Virginia and the cluster of biotech firms surrounding the National Institutes of Health in suburban Maryland.
As the map above shows, today venture capital investment and startup activity also reflect the turn back to the urban core; nearly half of the region's total (47.5 percent), or $600 million, went to the District of Columbia proper. Most of that was concentrated in a single zip code (20005) that spans McPherson Square, Thomas Circle and Logan Circle. And the urban shift is also reflected in significant venture capital investments in mixed-used, transit-oriented, walkable suburbs like Alexandria, Virginia, which attracted nearly $75 million in venture investment and Bethesda, Maryland, which pulled in $34 million. Overall, more than two-thirds (68.5 percent) of the region’s venture investment was clustered in primarily urban zip codes.
That said, the suburbs continued to attract venture investment as well. Suburban McLean attracted roughly $185 million in venture investment, much of it centered in and around Tyson's Corner.
• • • • •
The great cities of the Bos-Wash corridor comprise one of the most economically productive regions in the world, producing more the $2.5 trillion in economic output, more than the UK, Brazil, Russia or India. Together, New York, Boston and Washington, D.C., attracted $7.5 billion in venture capital investment in 2011, just over a quarter of the national total.
The shift to urban tech can also be clearly seen across the Bos-Wash corridor. New York City alone attracted more than $2 billion in venture capital investment., mainly in midtown and Lower Manhattan. Cambridge, home to MIT and Harvard, attracted another billion, Boston $669 million, and D.C. another $600 million. Predominantly urban zip codes accounted for more than three-quarters of of all investments in greater New York, greater than 70 percent in the Boston metro, and more than two-thirds in greater D.C.
This is of course in line with what urban theory has long held: That it is dense, diverse and dynamic cities filed with flexible and reconfigurable old buildings that are the real font of innovation. Could it be that the suburban nerdistan was the real outlier after all?
This is the eighth in a series of posts exploring the new geography of venture capital and high-tech start-ups, and the degree to which these start-up communities are shifting from their traditional locations in the suburbs to urban areas.