kropic1 / Shutterstock.com

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.

Software

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.

Isabel Ritchie

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).

Neighborhood Metro Investment (millions)
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
Waltham Boston-Cambridge $321
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

Biotechnology

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.

Isabel Ritchie

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.

Neighborhood Metro Investment (millions)
South San Francisco San Francisco $474
Sorrento Valley San Diego $310
Cambridge/MIT Boston-Cambridge $285
MIT Boston-Cambridge $199
Chevy Chase/Bethesda Washington, D.C. $150
Germantown 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.

Isabel Ritchie

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.

Neighborhood Metro Investment (millions)
South of Market/Mission District San Francisco $481
Rincon Hill San Francisco $154
Soho/NYU New York $130
Potrero Hill/Dogpatch/South Beach San Francisco $124
Palo Alto San Jose $119
Carpinteria Santa Barbara $103
Chelsea New York $93
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.

Isabel Ritchie

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.

Neighborhood Metro Investment (millions)
Menlo Park San Francisco $162
Atwood/Hanes Winston-Salem, NC $74
Redwood City San Francisco $69
Sorrento Valley San Diego $66
Bedford Boston-Cambridge $62
Littleton Boston-Cambridge $62
Mountain View San Jose $59
Lake Forest Los Angeles $55
Laguna Hills Los Angeles $48
Blands/Genlee Durham-Chapel Hill $43

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.

Isabel Ritchie

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.

Neighborhood Metro Investment (millions)
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
Chinatown San Francisco $70
Chelsea New York $70
Westport/Lakeland Baltimore $60
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.

Isabel Ritchie

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.

Neighborhood Metro Investment (millions)
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
Waltham Boston-Cambridge $484
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
Cambridge/MIT Boston-Cambridge $377
Redwood Shores San Francisco $369
Frisco Dallas $368
Sunnyvale San Jose $351
MIT Boston-Cambridge $320
Santa Clara San Jose $313
Soho/NYU New York $310
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.

Top image: kropic1 / Shutterstock.com

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