A hackathon in San Francisco, the capital of venture capital. Gabrielle Lurie/Reuters

The rest aren’t rising, and spatial inequality is getting worse.

Last month a cadre of Silicon Valley venture capitalists took a much-ballyhooed tour of the Rust Belt. As the New York Times glowingly reported, this “Comeback Cities Tour” featured stops in Detroit, Flint, Akron, Youngstown and South Bend. And of course, Pittsburgh has been lauded for its tech-based revitalization powered by its burgeoning robotics and self-driving vehicle prowess.

But to what extent is the Rust Belt really rising? Are venture capitalists really shifting their investments from overly expensive, overly crowded Silicon Valley? Do we see any significant changes the geography of venture capital investment?

Not so much.

The Bay Area—that is, San Francisco and Silicon Valley—currently accounts for nearly 45 percent of total venture capital investment in the entire United States. And the Acela Corridor, spanning Boston, New York, and Washington, comprises another third. Together, these two geographic regions attract nearly three-quarters of America’s venture capital investment. And, just the five leading metros account for more than 80 percent of total venture capital investment and 85 percent of its growth over the past decade. That’s spatial inequality on steroids.

Those are the big takeaways from our analysis of new data from Pitchbook on the geography of venture capital investment across U.S. metros. The data cover venture capital investment in 45 metros over the period 2006 to 2017. (Pitchbook provided us with an even more detailed spreadsheet of the data than was originally organized for and published by the National Venture Capital Association.)

The tables below list the 11 metros with more than a billion dollars in venture capital investment in 2017 and the ten which have seen the largest increases in venture capital in the decade-plus period spanning 2006 to 2017.

Metro VC Investment 2017 (millions) Share of U.S. Total 2017
San Francisco $25,215 33.20%
New York $12,344 16.25%
Boston $8,737 11.50%
San Jose $8,345 10.99%
Los Angeles $6,545 8.62%
Chicago $1,839 2.42%
Seattle $1,734 2.28%
Washington $1,551 2.04%
Austin $1,174 1.55%
Atlanta $1,157 1.52%
Miami $1,043 1.37%

San Francisco tops the first list with a whopping $25 billion plus in venture capital investment. That’s a third of the national total for 2017, and more than three times greater than Silicon Valley (the San Jose metro), which is still seen by many as the epicenter of entrepreneurship and venture capital investment. But that’s not all. San Francisco has seen by far the largest increase in venture capital investment over the past decade or so. Venture investment there has climbed five-fold from $5 billion in 2006 to $25 billion in 2017. Indeed, it accounted for more than 40 percent of total U.S. growth in venture capital over that period.

New York is second with $12.3 billion in venture investment, 16 percent of the 2017 total. It now considerably outdistances Boston-Cambridge in third place with $8.7 billion, as well as Silicon Valley, which is fourth, with $8.3 billion. Indeed, New York saw its level of venture capital investment explode from less than $2 billion in 2006 to more than $12 billion in 2017. It accounted for more than 20 percent of the total U.S. growth in venture capital over this period, as its share more than doubled from 7.5 percent in 2006 to more than 16 percent in 2017.

Los Angeles is next in line with $6.5 billion. It is the only other metro outside of San Francisco and New York that accounted for a noticeable share of the overall increase in U.S. venture capital.

There are six additional metros where venture capital investment topped $1 billion in 2017: Chicago, Seattle, Washington D.C., Austin, Atlanta, and Miami. With the exception of the last two, the rest are all long-established venture capital and entrepreneurial hubs.

Metro Change in Venture Capital Investment 2006-17 (millions) Share of Total Change 2006-17
San Francisco $20,224 40.1%
New York $10,426 20.1%
Boston-Cambridge $5,593 11.1%
Los Angeles $4,721 9.4%
San Jose $3,051 6.0%
Chicago $1,397 2.8%
Miami $812 1.6%
Atlanta $776 1.5%
Washington, D.C. $568 1.1%
Austin $535 1.1%

Other established tech hubs have failed to keep pace with the growth of leading metros, San Francisco and New York. Seattle, remarkably, saw virtually no growth in its venture capital over the past decade, while both Silicon Valley and Washington, D.C., saw growth of roughly 60 percent, a far cry from the 400-plus percent growth in San Francisco and 500-plus percent growth in New York. And while “rise of the rest” metros like Charlotte, Nashville, Pittsburgh, Portland, Dayton, Huntsville, Tampa, San Antonio, St. Louis, Cincinnati, and Sacramento, did see considerable growth in venture capital investment in their startups, together, they accounted for less than three percent of U.S. venture capital investment in 2017. Individually, none of them registered more than 0.4 percentage points in the national venture capital distribution in 2017.

So, what factors are associated with the places that draw venture capital investment?

To get at this, my colleague Charlotta Mellander ran a basic correlation analysis between the level of venture capital investment and key economic and demographic characteristics of metros. (As usual, it’s important to note that correlation does not equal causation, but points only to associations between variables.) The chart below lists the main findings.

Category Correlate
Metro Size .75
High tech industry .72
Housing prices .70
Wages .69
Foreign-born population .65
GDP per capita .64
Gay and lesbian community .64
Share of income on housing .64
Bachelor’s degree or higher .62
Obama voters, 2012 .62
Metro density .61
Commute by transit .60
Innovation .52
Creative class .48
Wage inequality .47
Income inequality .46
Working class -.47
Drive to work alone -.62
Romney voters, 2012 -.62

Given what we’ve already seen, it should come as no surprise that venture capital investment overwhelming flows to America’s largest, densest, most diverse, and most economically advanced metros. In fact, its very flow is a contributor to all those things.

Not surprisingly, venture capital investment is higher in metros with higher levels of innovation (measured as patents) and higher concentrations of high-tech industry firms. Also not surprising is the fact that venture capital investment is greater in places with a higher-skilled workforce, whether measured as the share of adults with higher education or the share of the workforce in the creative class. Conversely, venture capital investment across metros is negatively associated with the working class share of the workforce. It follows that these are more affluent places: Venture capital is associated with both higher economic output and wages.

Venture capital investment flows to more urbanized places. It is positively associated with size density, and higher rates of public transit commuters.

Perhaps more surprisingly, venture capital investment reflects the contours of America’s political divide. It is strongly associated with more liberal metros and negatively associated with more conservative metros. In fact, leading venture capital metros like the Bay Area, New York, Boston, and L.A. are among the places that voted most overwhelmingly against Trump in the 2016 election.

Donald Trump and the Republicans may want to attack immigrants, but venture capital investment is also closely associated with a metro’s share of foreign-born people. As numerous studies have pointed out, immigrants to America have founded a substantial number of this nation’s leading companies. It is estimated that as many as 40 percent of Bay Area startups have a foreign-born member on their founding team. Venture capital investment is also associated with the presence of a larger gay and lesbian community.

But venture capital investment is also connected to the New Urban Crisis. Metros with more venture capital investment have higher housing prices and people spending a greater share of their income on housing. These metros also have higher levels of wage and income inequality.

Venture capital investment provides an interesting, and disturbing, window into geographic inequality in America. It is the very definition of winner-take-all urbanism, flowing overwhelmingly to America’s largest, most dense, most highly educated, most innovative, and most affluent regions. For all the talk of the rise of the rest, venture capital investment and the wealth it generates are getting more, not less, concentrated.

Powered by the concentration of innovation, America’s spatial inequality is only likely to worsen and deepen over time. This will not only exacerbate our political divide, but fan the flames of a political backlash that takes aim at everything from immigration to government support for universities and research and development. If this backlash continues to be successful, it will threaten the very sources of America’s innovation, economic growth, and rising living standards.

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