This article is a City Lab article from The Atlantic by Richard florida. It is posted here.

Startups and Venture Capital Are Going Urban

Startups and Venture Capital Are Going Urban

The iconic image of high-tech industry—as viewers of the HBO series Silicon Valley are well aware—is a suburban office park off a highway interchange. For decades, these so-called suburban “nerdistans” were the preferred location for high-tech startups and their workers. But the past few years have seen a striking urban shift in high-tech startups and venture-capital investment. As my latest research has shown, the United States is home to two billion-dollar venture-capital neighborhoods—both of them in downtown San Francisco.

Today, I drill down further into this urban shift, summarizing the key findings of a new analysis I co-authored with my Martin Prosperity Institute (MPI) colleague Karen King. Our study uses detailed data from Thomson Reuters to identify venture-capital investments that flow to dense, walkable, and transit-friendly neighborhoods based on ZIP codes. We identify urban neighborhoods as those with more than 2,200 households per square mile, a thresholdoriginally documented by economist Jed Kolko. This is a big advance over previous research, which has been hampered by highly aggregated data available only at the regional or metro level.

Ultimately, our analysis reveals two big takeaways. The first is that more than half of all startup neighborhoods are urban, with 57 percent of startup companies and 54 percent of venture-capital investments located in urban ZIP codes. The second is that startup neighborhoods have considerably greater shares of commuters who walk, bike, or take transit to work. The share of workers who do so is nearly twice as high in neighborhoods with venture-capital-backed startups compared to the national average (16.6 versus 8.4 percent). In fact, a third of all venture-capital investment is located in neighborhoods with more than 30 percent of workers who walk, bike, or use transit when commuting, and more than a quarter of it is located in neighborhoods where more than half of workers do so.

Have a look at the table below, which shows the top neighborhoods, or ZIP codes, for venture-capital investment (it includes their density, as well as the shares of workers who walk, bike, or use transit to get to work). All together, roughly three times as many workers in these neighborhoods (25.9 percent) walk, bike, or use transit to get to work compared to the national average.

Neighborhood Metro Venture
Capital Investment (millions)
(households per sq. mile)
Bike, or Use Transit
South of Market/ Mission District San Francisco $1,063 9,659 61.2%
Rincon Hill San Francisco $1,004 9,718 59.6%
Palo Alto San Jose $998 3,194 21.3%
Potrero Hill/Dogpatch/South Beach San Francisco $885 7,665 46.8%
Sorrento Valley San Diego $568 137 10.0%
South San Francisco San Francisco $501 2,049 14.8%
Prospect Hill Park Boston-Cambridge $484 1,359 11.1%
Financial District San Francisco $481 2,654 92.1%
Menlo Park San Francisco $430 1,309 12.7%
Mountain View San Jose $416 1,158 9.5%
Old Mountain View San Jose $392 3,899 15.9%
Redwood City San Francisco $378 1,281 14.6%
Cambridge/MIT Boston-Cambridge $377 9,331 64.3%
Redwood Shores San Francisco $369 1,946 5.9%
Frisco Dallas $368 498 0.9%
Sunnyvale San Jose $351 2,199 7.2%
MIT Boston-Cambridge $320 5,300 65.0%
Santa Clara (north) San Jose $313 1,348 5.6%
Soho/NYU New York $310 41,294 83.8%
Financial District/Embarcadero San Francisco $306 6,875 60.3%

Next, we take an even closer look at venture-capital investment in the three leading regions across the United States—the San Francisco Bay Area, New York, and Boston-Cambridge—which together account for nearly $20 billion in venture-capital investment, or 60 per­cent of the national total. Nearly 40 percent of all venture-capital investment in these three regions is located in neighborhoods where more than half of all workers walk, bike, or use transit to get to work.

Read the rest of the article here.

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