Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is a university professor in the University of Toronto’s School of Cities and Rotman School of Management, and a distinguished fellow at New York University’s Schack Institute of Real Estate.
More than 50 percent are urban, and two in downtown San Francisco attract more than a billion dollars each in venture capital.
Venture capital is the driving force of high-tech innovation, spurring revolutionary companies from Intel, Apple, and Genentech to Twitter, Facebook, and Uber. But venture capital investment in startup companies is increasingly concentrated in a small number of urban neighborhoods in America’s major cities. That’s the main takeaway of a new report I co-authored with my Martin Prosperity Institute colleague Karen King. The report, titled Rise of the Urban Startup Neighborhood, uses granular data from Thomson Reuters to look at micro-clusters of venture capital investment across America’s neighborhoods and five leading high-tech industries: software, biotechnology, media and entertainment, medical devices and equipment, and information technology services.
The first map shows the pattern for software, an industry that attracts $12 billion, or 36 percent, of total venture capital investment. Again, venture capital investment is primarily located in the Bay Area and across the New York-Boston-Washington Corridor, but smaller circles also appear in Southern California, Seattle, Portland, Atlanta, and Austin.
The table below shows the top ten neighborhoods with the highest shares of venture capital investment in software. Palo Alto tops the list with $750 million, or 6.3 percent, of investment. But, the next three neighborhoods are located in San Francisco: Rincon Hill ($652 million), Potrero/Dogpatch/South Beach ($444 million), and South of Market/Mission District ($389 million). In total, a whopping 15 of the top 20 neighborhoods are located in the Bay Area (eight in San Francisco and seven in San Jose).
|Palo Alto||San Jose||$750|
|Rincon Hill||San Francisco||$652|
|Potrero Hill/Dogpatch/South Beach||San Francisco||$444|
|South of Market/Mission District||San Francisco||$389|
|Financial District||San Francisco||$231|
|Los Altos Hills||San Jose||$210|
|Old Mountain View||San Jose||$202|
|Foster City||San Francisco||$198|
|Redwood Shores||San Francisco||$192|
The second map shows the pattern for biotechnology, which attracts $5.7 billion, or 17 percent, of all venture capital investment nationwide. Once more, investment is clustered in the Bay Area, Southern California, and the New York-Boston-Washington Corridor, as well as smaller metros like Seattle and Detroit.
The table below shows the top ten neighborhoods with the highest biotechnology investment shares. South San Francisco tops the list with $474 million, followed by Sorrento Valley in San Diego ($310 million), two neighborhoods near MIT, and two near Chevy Chase/Bethesda (close to the National Institutes of Health). Unlike the software industry, biotechnology investment tends to be clustered around major universities and research centers.
|South San Francisco||San Francisco||$474|
|Sorrento Valley||San Diego||$310|
|Chevy Chase/Bethesda||Washington, D.C.||$150|
|West Lake/Queen Anne||Seattle||$145|
|San Carlos||San Francisco||$138|
|Redwood City||San Francisco||$129|
|Redwood Shores||San Francisco||$126|
Media and Entertainment
The third map below shows the geography of venture capital investment in media and entertainment, an industry which attracts another $3.2 billion, or nearly 10 percent, of venture capital investment nationally. This time, venture capital investment is mostly concentrated in the Bay Area, greater Los Angeles, and New York, with smaller clusters near Seattle, Denver, Washington, D.C., and Miami.
The table below lists the top ten neighborhoods for investment in media and entertainment. Two San Francisco neighborhoods—the Mission District and Rincon Hill—top the list with $481 million and $154 million, respectively. Rounding out the top five are Soho/NYU in New York ($130 million), Potrero Hill/Dogpatch/South Beach in San Francisco ($124 million), and Palo Alto in San Jose ($119 million). In total, the top 20 consists of six neighborhoods in San Francisco, four in New York, three in San Jose, two in L.A., and one each in Santa Barbara, Miami, Denver, Washington, D.C., and Seattle.
|South of Market/Mission District||San Francisco||$481|
|Rincon Hill||San Francisco||$154|
|Potrero Hill/Dogpatch/South Beach||San Francisco||$124|
|Palo Alto||San Jose||$119|
|UC Irvine||Los Angeles||$90|
|Hayes Valley/Civic Center||San Francisco||$86|
|Gramercy Park/East Village||New York||$68|
Medical Devices and Equipment
The fourth map below shows the pattern for medical devices and equipment, which makes up a slightly smaller share of national venture capital investment: $2.4 billion, or roughly 7 percent. The majority of this investment is located in the San Francisco Bay Area, Boston, Southern California, New York, Minneapolis-St. Paul, and North Carolina, although investment is far less clustered than it is for other high-tech industries, as the map below shows.
The table below lists the ten leading neighborhoods for venture capital investment in medical devices and equipment. Menlo Park leads the pack, with $162 million—more than twice the investment of the second neighborhood on the list, Atwood/Hanes in North Carolina ($74 million). All together, L.A., Boston-Cambridge, and San Francisco each contribute three of the top 20 neighborhoods, while San Jose and Minneapolis-St.Paul each have two. Rounding out the top 20 are single neighborhoods in Winston-Salem, San Diego, Durham-Chapel Hill, Atlanta, New York, Santa Rosa, and Cleveland.
|Menlo Park||San Francisco||$162|
|Redwood City||San Francisco||$69|
|Sorrento Valley||San Diego||$66|
|Mountain View||San Jose||$59|
|Lake Forest||Los Angeles||$55|
|Laguna Hills||Los Angeles||$48|
Information Technology Services
The fifth map charts the geography of venture capital investment in information technology services, which attracts just $2 billion, or 6 percent, of all venture capital investment in the U.S. As the map below shows, the majority of this investment is concentrated in the San Francisco Bay Area, Boston, New York City, Washington, D.C., Seattle, and Atlanta.
The table below shows the ten leading neighborhoods for venture capital investment in IT services. Again, three downtown San Francisco neighborhoods top the list: Potrero Hill/Dogpatch/South Beach ($139 million), Rincon Hill ($98 million), and the Financial District ($83 million). In total, eight San Francisco neighborhoods make the top 20, in addition to three in San Jose and three in New York. Baltimore, Atlanta, Boston, Denver, Washington, D.C., and Bridgeport, Connecticut, each claim a single neighborhood.
|Potrero Hill/Dogpatch/South Beach||San Francisco||$139|
|Rincon Hill||San Francisco||$98|
|Financial District||San Francisco||$83|
|Cuesta Park/Blossom Valley||San Jose||$73|
|Embarcadero/Financial District||San Francisco||$54|
|Palo Alto (South)||San Jose||$51|
|Midtown/Old Fourth Ward||Atlanta||$40|
All High-Tech Industries
The last map brings it all together, charting the geography of venture capital investment across all high-tech industries. The largest clusters are found in the San Francisco Bay Area, around Los Angeles and San Diego in Southern California, and in the New York-Boston-Washington Corridor on the East Coast.
The table below shows the 20 neighborhoods with the largest amounts of venture capital investment. San Francisco neighborhoods make up three of the top five and six of the top ten. All together, the top 20 includes nine neighborhoods in San Francisco, five in San Jose, three in Boston-Cambridge, and one each in San Diego, Dallas, and New York. Many of these neighborhoods are located in urban centers or around major universities including MIT, Stanford, the University of California, San Diego, and New York University.
|South of Market/Mission District||San Francisco||$1,057|
|Rincon Hill||San Francisco||$1,004|
|Palo Alto||San Jose||$998|
|Potrero Hill/Dogpatch/South Beach||San Francisco||$885|
|Sorrento Valley||San Diego||$568|
|South San Francisco||San Francisco||$501|
|Financial District||San Francisco||$481|
|Menlo Park||San Francisco||$426|
|Mountain View||San Jose||$402|
|Old Mountain View||San Jose||$392|
|Redwood City||San Francisco||$378|
|Redwood Shores||San Francisco||$369|
|Santa Clara||San Jose||$313|
|Financial District/Embarcadero||San Francisco||$306|
Ultimately, venture capital investment and startup activity is strikingly concentrated across U.S. neighborhoods. The top 20 neighborhoods alone account for more than $10 billion in venture capital investment—roughly a third of the national total. In addition, less than one percent (0.2 percent) of all ZIP codes, or 83 neighborhoods, attract more than $100 million in venture capital investment, representing over 60 percent of all venture capital investment nationwide. Overall, there are two billion-dollar venture capital neighborhoods, both located in downtown San Francisco: South of Market/Mission District and Rincon Hill. Palo Alto, home to 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—receive more than half a billion dollars in venture capital investment.
Despite ongoing predictions of the “rise of the rest”—the notion that high-tech startup activity is spreading to more and new areas of the U.S.—the reality is that venture capital and startup activity are extraordinarily clustered in a small number of neighborhoods across the country.