Venture Capitols: The Most Popular States for Startup Investors

By Jordan Weissmann

Over the last two weeks, my colleague Alexis Madrigal has been touring nascent start-up scenes across the Midwest, reporting on entrepreneurs in places like Cleveland and Detroit who are both building companies and, hopefully, urban revivals. 

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The more ambitious people like that we have around the country, the better off we'll be. But where are America's scrappy tech start-ups really finding success today? When measured in venture capital dollar, mostly in just a few, select places. 

In 2011, according to the National Venture Capital Association's annual report, only four states broke the $1 billion in VC investment: California, Massachusetts, New York, and Texas. Together with fifth place Illinois, they claimed 77 percent of all $28.8 billion dollars of VC dollars invested in the United States. About 51 of that money sloshed around California alone.

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While investment is still concentrated today, it is beginning to spread around a bit. According to the NVCA, companies received venture capital infusions in a record 46 states (47, if you include the District of Columbia). Only Wyoming, Alaska, Arkansas, and Mississippi were left out. 

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Some states are bound to end up as the destination for more VC funding simply because they have larger overall economies. So to create a measure of which parts of the country were the most start-up-oriented,* I looked at total VC funding as a percentage of state GDP. Massachusetts and California still top the list, with total VC investments reaching nearly a full percentage point of GDP, but they're joined by smaller tech hubs such Utah, Colorado, and Washington. Perhaps the most surprising member of the top 10: New Hampshire, where 16 companies pulled in $96 million total in VC funding last year. 

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Only 13 states received VC investment equal to 0.1% of their GDP or more. So we're not quite a startup nation yet -- but perhaps we're becoming more of one. 

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*Again, I'm talking specifically about the sorts of cutting-edge start-ups with the potential to scale up that VC investors are interested in, not new small businesses, which I've discussed in previous posts. 

This article available online at:

http://www.theatlantic.com/business/archive/2012/09/venture-capitols-the-most-popular-states-for-startup-investors/262964/