While San Francisco and New York are two of the most sought-after locations for fresh and exciting startups, the cost to do business in these cities is not for everyone. According to the CBRE Group, the average office space rent in these cities cost $80 per square feet per year. That sky-high price point can make it extremely difficult to keep your doors open if most of your capital is spent on keeping the lights on or to find startup jobs in a highly competitive market.
In other cities, you’d only have to pay less than $20 per square feet per year. We looked at 41 of the largest metropolitan areas and the hottest startup spots in the United States, excluding the Big Apple and the Golden Gate City, to help you choose the best city for your startup or to find startup jobs.
We compiled data from sources like the U.S. Census Bureau, CBRE Group, and Startup Genome and then crunched the numbers for each location to come up with a definitive ranking of the best cities for startups that are not New York or San Francisco.
In ranking the cities, we analyzed eight metrics that significantly impact a startup’s survival and growth.
- Number of startups
- Venture capital investments
- Tech talent pool growth
- Population concentration of millennials
- City gross domestic product (GDP)
- College attainment rate
- Travel time to work
- Cost of living
Read on to see which cities made the top 10.
1. Atlanta
The ATL performed well across the board, ranking in the top 10 in four heavily weighted categories and making it the best non-New York or San Francisco startup city in North America.
Atlanta had one of the highest growth rates in the tech population labor pool from 2011 to 2015 at 47.60 percent to come in at number four. The city also boasts one of the highest numbers of startups at 10,193 to rank sixth. These startups enjoy the city’s buzzing local economy as Atlanta generated more than $320 million in GDP to rank eighth. In addition, startups in the city were recipients of $754 million of venture capital (VC) investments to place 10th.
The city also did well in three other categories. Atlanta ranked 11th in population concentration of millennials, 17th in college attainment rate and 19th in cost of living index. While the sprawling city performed well in almost all categories, it was hindered slightly by its long average commute times, placing 39th in the travel time to work metric.
2. Seattle
The Emerald City comes second with top 10 finishes in five categories. Seattle was flooded with VC money in 2016 as startups received more than $1.5 billion to place fourth. Its college attainment rate is one of the highest in the country at 43.5 percent, also ranking fourth. Lastly, the city is home to 7,539 startups to come in at number nine.
The city also performed very well in three other categories. It ranked ninth in population concentration of millennials, ninth in GDP and 17th in tech talent pool growth. However, it fell to the bottom in two metrics. It finished 35th in travel time to work and 40th in cost of living index.
3. Chicago
The Windy City completes our list of podium finishers, grabbing the third spot with four categories in the top 10. Without New York and San Francisco, Chicago owns the second-largest economy in North America with a GDP of $569 billion. With a buzzing local economy, the startup community is the third-largest on our list with 15,412 firms that are two years old or younger. The city’s startup community is huge partly because Chicago was the destination of $1.25 billion of VC investment money to rank sixth.
Chicago also ranked well in three other categories. It placed ninth in college attainment rate, 18th in population concentration of millennials and 19th in growth of tech talent pool. However, it ranked in the bottom two categories, placing 36th in cost of living index and 38th in travel time to work.
4. Boston
Beantown lands at number four, buoyed by top 10 rankings in five categories. Without New York and San Francisco, Boston is the top choice of venture capitalists in North America as startups in the city received more than $6 billion in investments. On top of that, the city is home one of the largest populations of college-educated professionals in North America, with 46.3 percent of its residents holding a bachelor’s degree or higher, to place second. Also, almost a quarter of Boston’s population are millennials to rank third in that category.
Boston did well in two other metrics, finishing seventh in GDP and 10th in the number of startups. Nevertheless, the city plunged to the cellar in three categories, ranking 37th in travel time to work, 39th in growth of its tech talent pool and 39th in cost of living index.
5. Dallas
Dallas completes the first half of our top 10 rankings by finishing in the top 10 in three categories. Excluding New York and San Francisco, the Big D has the third-largest economy in North America, with a GDP of more than $471 billion. Its startup community is vibrant just like its economy with 11,526 firms that are two years old or younger, finish at number four. Lastly, Dallas is one of the most affordable cities in North America with a cost of living index at 70.2 to rank seventh.
The city posted decent performances in three other metrics. It finished 11th in VC investments, 17th in tech talent pool growth and 22nd in college attainment rate. Nonetheless, it ranked at the bottom half in two categories: 28th in travel time to work and 33rd in population concentration of millennials.
6. San Diego
San Diego performs well in five categories. Startups in the city are the beneficiary of the third largest VC investments at $1.54 million. With VC money flowing into the city, it’s no wonder that San Diego hosts a healthy startup community. The city has 6,804 startups to rank at number 12. Also, the city’s local economy is vibrant as its GDP is valued at $191 billion.
The city also ranked within the top 20 in two other categories: 14th in travel time to work and 15th in population concentration of millennials. However, San Diego finished in the middle of the pack in three metrics. It placed 23rd in college attainment rate, 25th in cost of living index and 26th in tech talent pool growth.
7. Minneapolis
The largest city in Minnesota ranks number seven in our survey with stellar performances in three categories. It is one of the most educated cities in the country, with 43.5 percent of residents holding a bachelor’s degree or higher, which ranks fifth. Also, the population concentration of millennials in the city is high at 21.70 percent to finish seventh. Lastly, the travel time to and from work is decent at 25.3 minutes to place 11th.
Minneapolis also ranked well in three other categories. It placed 12th in GDP, 15th in VC investments and 17th in the number of startups. However, the city finished 28th in tech talent pool growth and 34th in cost of living index.
8. Austin
The capital of Texas takes the eighth spot with strong performances in four categories. More than 41 percent of Austin residents are college educated to rank sixth in that category. Startups in the city have received more than $977 million in VC money to place seventh. Lastly, a fifth of the population are millennials to come in at number 13.
Austin, however, hovered in the middle of the rankings in the remaining five metrics. It finished 15th in cost of living index, 20th in travel time to work, 21st in the number of startups, 22nd in GDP and 25th in tech talent pool growth.
9. Los Angeles
The City of Angels flies into number nine with outstanding performances in three categories. Los Angeles has the largest economy in North America excluding New York and San Francisco with a GDP of $884 billion. Its number of startups comes second to none on our list as L.A. is home to 30,047 firms not older than two years. Lastly, venture capitalists favor L.A.-based startups as these firms received $1.67 billion in investments to rank second.
While L.A. posted excellent rankings in three categories, it dropped to the bottom half in five other metrics. The city ranked 24th in population concentration of millennials, 25th in college attainment rate, 31st in cost of living index, 33rd in tech talent pool growth and 34th in travel time to work.
10. Philadelphia
The City of Brotherly Love caps off our top 10 rankings, posting top 10 finishes in three categories. Philadelphia has the sixth-largest economy on our list with a GDP of $381 billion. Philly is home to 8,518 startups, placing it eighth in that category. These startups have received $897 million in VC investments to take the ninth spot.
Philadelphia also did well in two other categories: 13th in college attainment rate and 16th in population concentration of millennials. Nonetheless, it did not fare well in three metrics. Philly finished 27th in tech talent pool growth, 31st in travel time to work and 38th in cost of living index.
Methodology
We based our ranking of the best cities for startups that are not New York and San Francisco on eight metrics. We then analyzed the data and assigned the following weights for each category based on the category’s importance.
1. Number of Startups – 17.5 percent
The metric provides the number of businesses that are not older than two years in the city. We assigned the highest weight to this category because a high number of startups indicate that a city’s environment is conducive to launching new businesses. More importantly, it suggests that many employer firms are surviving the first year in business, which is critical considering roughly 20 percent shutter their doors within the initial year of operation.
2. Venture Capital Funding – 17.5 percent
The category is defined as the number of investments that flowed into the city from venture capital groups. We also assigned the highest weight to this metric because VC investments are critical to the establishment and growth of fresh and innovative businesses. Cities that ranked high on this metric are home to some of the most promising startups in the continent.
3. Tech Talent Pool Growth – 15 percent
This metric is defined as the growth of the labor force in the tech sector over the course of four years. We decided to include this metric because tech startups are getting established faster than any private business. The ICT sector is 48 percent more likely to give birth to a new firm than the private sector in its entirety. Therefore, a city with a growing tech talent pool is more likely able to support the establishment and growth of startups.
4. Population Concentration of Millennials – 15 percent
This category is defined as the percentage of millennials or those between the ages of 25 and 35. We decided to include this metric in our analysis as millennials are the largest generation in the workforce in the U.S. The startup community needs the tech-savvy millennial for either employment or entrepreneurship.
5. City GDP – 10 percent
This metric is defined as the sum of the metropolitan’s gross domestic product coming from all industries. We decided to include GDP in our analysis as it reflects the overall health of the city’s economy. Startups are more likely to survive in cities with high GDP. In business, a rising tide lifts all boats.
6. College Degree Rate – 10 percent
The category is the percentage of the city’s population with a bachelor’s degree or higher. We decided to include this metric in our analysis as the U.S. is currently struggling with talent drain due to record low unemployment rates. Startups need talent outside of tech to help support and grow the business.
7. Mean Travel Time to/From Work – 7.5 percent
The metric shows the mean travel time of both business owners and employees to get to and from work. We decided to include this metric in our study because every minute spent traveling is time that could have been spent building the startup. However, we gave this metric the lowest weight because people can use technology to get a bit of work done while commuting.
8. Cost of Living – 7.5 percent
Cost of living indicates how expensive it is to live in a state. We included this metric in our analysis because cities with low cost of living are attractive to both entrepreneur and employee. However, we also gave this metric the lowest weight as income can account for cost of living to some extent.
Data Sources
Number of Startups
For this metric, we relied on the latest data provided by the U.S. Census Bureau through the American FactFinder for U.S. cities. Cities that have more startups received higher rankings.
Venture Capital Funding
The National Venture Capital Association provided the 2016 data for this metric for U.S. cities. Cities that received more VC funding received higher rankings.
Tech Talent Pool Growth
For this category, we collected data from the CBRE Group for U.S. cities. The largest commercial real estate investment company released the Tech Talent Analyzer in 2017 which ranks the top tech talent markets. For this metric, the company measured the growth of labor in tech from 2011-2015. Cities with high-tech talent pool growth were given higher rankings.
Population Concentration of Millennials
We also gathered data for this metric from the CBRE Group which also calculated the percentage of millennials living a city on their Tech Talent Analyzer. Cities with a higher concentration of millennials got higher rankings.
City GDP
We sourced 2016 data for this metric from the Bureau of Economic Analysis for U.S. cities. Cities with high GDP ranked high on this metric.
College Attainment Rate
The U.S. Census Bureau, through its American FactFinder, provided the data for this metric for U.S. cities. Cities with high college attainment rate received higher rankings.
Mean Travel Time To and From Work
For this metric, we relied on 2016 data provided by U.S. Census Bureau for U.S. cities. Cities with a low commute time were given higher rankings.
Cost of Living Index
Numbeo was our data source for this metric. The crowd-source database of consumer prices provides the 2017 cost of living index based on the combined indices of rent, groceries and local purchasing power. Cities that have a low cost of living ranked high on this metric.
The Bottom Line: The Best Cities for Startups Not Named New York or San Francisco
Our analysis showed that there’s no particular trend in terms of geography to start a new business. This is good news for would-be entrepreneurs as you can always find a city that’s conducive to start your company without having to travel across the continent.
What are your thoughts on the results of our research on the best cities for startups? Feel free to share your comments below.
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PJ
Well done. Thank you. Keep going, what are the next ten? Twenty? Thirty?