The Top 15 Most Entrepreneurial Cities for 2018

Entrepreneurship serves as the backbone of the US economy. The Global Entrepreneurship and Development Institute found that out of 138 countries, the United States is second to none in providing the best environment for cultivating entrepreneurship. Cities like San Francisco and New York are often regarded as havens for entrepreneurs. While these locations are reputable for innovation and investment, there are also other cities in the country that can fast-track an entrepreneur’s success.

To help you identify these cities, we looked at 40 of the biggest metropolitan areas in the country and compiled data from sources such as United States Census Bureau, Kauffman Foundation, and National Venture Capital Association. We then analyzed the data for each city to put together a definitive ranking of the most entrepreneurial cities in the US.

To rank the cities, we looked at ten categories that significantly influence a city’s desirability for entrepreneurs:

• Startup Density
• Rate of New Entrepreneurs
• Opportunity Share of New Entrepreneurs
• Venture Capital Investment in the City
• Tax Friendliness to Small Businesses
• Business as the Primary Source of Income for Local Entrepreneurs
• Infrastructure and Pollution
• Annual Payroll
• Number of Firms with Paid Employees
• Number of of Nonemployer Firms

Read on to see which metropolitan areas made the top 15. We also list our definitive ranking of all 40 cities below.

1. Miami-Fort Lauderdale-Pompano Beach

The most entrepreneurial city in our rankings is the metropolitan statistical area (MSA) of Miami-Fort Lauderdale-Pompano Beach with eight categories placing within the top 15. The city also ranks number one in rate of new entrepreneurs, giving birth to 560 new entrepreneurs out of 100,000 adults every month. Also, it ranks second in startup density. For every 1,000 employer businesses in this metropolis, 107.8 are employer startup firms with with less than one year of age.

In addition, Miami’s infrastructure and pollution levels are among the best in the country, coming in at number four, Lastly, venture capital money has also found its way into the city as it ranks 8 in the category with a total of $1.3 billion in VC investments. With the exception of business as a primary source of income category, Miami has posted stellar scores across the board.

2. New York-Northern New Jersey-Long Island

The concrete jungle of New York city takes home silver in our rankings as it posts top ten rankings in six categories. The city shells out the highest employee payroll to the tune of $531.9 billion per year. New York city has a lot of money to spend as it ranks second in VC investment, totalling to about $7.57 billion in 2016. Lastly, it ranks second in rate of new entrepreneurs. The city is home to 410 new entrepreneurs out of 100,000 adults every month.

3. Los Angeles-Long Beach-Santa Ana

Los Angeles comes in at number three, ranking within the top 10 in seven categories. Its rate of new entrepreneurs is the highest in the country. In this city, 560 people out of 100,000 adults became entrepreneurs every month. In terms of annual payroll, it’s number two in the country, spending over $272 billion on employee salary. In addition, the city is flooded in VC money, as it received nearly $1.7 billion in venture capital investments. No other MSA in our list has managed to post strong rankings in almost all categories.

4. Dallas-Fort Worth-Arlington

Dallas grabs the fourth spot after posting top 10 finishes in six categories. The MSA is regarded as the most tax friendly city in our rankings with a score of 3.56 out of 5. It ranks seventh in startup density, as it hosted 94.2 new firms out of 1,000 in 2016. In addition, the city touts an 85.18 percent in opportunity share of new entrepreneurs. This means that around 85 out of 100 new businesses were driven by opportunity rather than by necessity.

5. Houston-Sugar Land-Baytown

The Houston MSA lands at number five, launched by top 10 rankings in six categories. It comes second to Dallas in tax friendliness with a score of 3.49 out of five. With an annual payroll of $147.8 billion, it ranks seventh in that category. Furthermore, it comes in eighth in rate of new entrepreneurs with 400 new entrepreneurs out of 100,000 adults each month.

6. Atlanta-Sandy Springs-Marietta

Coming in at number six is the city of Atlanta, propelled by top 15 rankings in eight categories. The city is home to 430 new entrepreneurs out of 100,000 adults each month to take the fifth spot in that category. In addition, 72.1 percent of business owners in the city rely solely on their business as their primary source of income to rank sixth in the category. Also, the businesses in the city pay $117.5 billion in payroll every year to come in at number 10.

7. San Francisco-Oakland-Fremont

Famous as one of the world’s top tech hub, San Francisco sits at number seven in our rankings with top 10 finishes in five categories. As expected, the city ranks first in VC category with $23.4 billion in VC investments. Just like New York, the surplus in VC investments translates into employee payroll. The city pays around $160.88 billion in employee salary annually. Also, San Francisco places ninth in nonemployer establishments. It appears that an abundance in investment money has contributed to the growth of 437,632 entrepreneurs who have no employees.

8. Denver-Aurora-Broomfield

Denver comes in at number eight as it finishes within the top 15 in five categories. In the city of Denver, 71.6 percent of entrepreneurs rely on their business as their primary source of income to place seventh in the category. On top of that, the city gives birth to 390 new entrepreneurs out of 100,000 adults in each month to finish ninth in the category. Lastly, there are around 92 firms per 1,000 employer businesses that are less than one year of age to take the tenth spot in the category.

9. Austin-Round Rock-San Marcos

Buoyed by top ten finishes in four heavyweight categories, Austin barges into number nine. It ranks third in rate of new entrepreneurs with 510 new entrepreneurs each month for every 100,000 adults. With plenty of new entrepreneurs, it’s not surprising that the city’s startup density is also high to come in fourth. In Austin, there are 104.5 employer firms that are less than one year old for every 1,000 businesses. In addition, nearly 85 out of 100 entrepreneurs in the city were driven by opportunity as opposed to necessity to rank 10th in the category.

10. Washington-Arlington-Alexandria

Landing at number 10 is the city of Washington with top 10 finishes in three categories bearing considerable weight. Washington’s infrastructure and pollution levels are second best in the country. Furthermore, 71 percent of entrepreneurs in the city rely on their business as their primary source of income to finish ninth in the category. Business owners will be not be worrying about income anytime soon because Washington is the recipient of over $1.089 billion in venture capital investments to come in tenth.

11. Phoenix-Mesa-Glendale

At number 11 is the metropolitan area of Phoenix which boasts top 15 finishes in six categories. The city ranks seventh in opportunity share of new entrepreneurs with over 87 out of 100 adults in the area becoming entrepreneurs driven by opportunity. It ranks 10th in rate of entrepreneurs. Phoenix produces 380 new business owners out 100,000 adults each month. Finally, 92.1 per 1,000 employer businesses in the city are startups to place 12th in the category.

12. Boston-Cambridge-Quincy

12th in our ranking is the metropolitan area of Boston, spurred by six categories ranking within the top 15. 72.5 percent of employer entrepreneurs in Boston depend on their business as their primary source of income to come in third in the category. Moreover, there are plenty of VC money to go around in the city. Boston ranks fourth in the category with over $6 billion in venture capital investment. Same with San Francisco and New York, there appears to be a correlation between VC investments and employee payroll. The city pays over $160.8 billion per year in employee salary.

13. San Diego-Carlsbad-San Marcos

San Diego takes the 13th spot, bolstered by top ten placings in three heavyweight categories. The city is home to 490 new entrepreneurs for every 100,000 adults each month to rank fourth. With more residents becoming entrepreneurs, it makes sense for the city to rank high in the startup density metric. There are close to 96 employer firms that are less than one year old for every 1,000 businesses in the city. VC funding may have something to do with the city’s high rate of new startups and entrepreneurs. San Diego ranks sixth in the category as it welcomed $1.548 billion in venture capital investments last year.

14. Orlando-Kissimmee-Sanford

Marching at number 14 is Orlando as it banners top six finishes in three categories. The city enjoys high startup density as 105 firms in every 1,000 businesses are less than one year old to rank third. Also, 72.2 percent of entrepreneurs have the luxury of relying on their business as their primary income source to finish fifth. Orlando’s tax-friendly policies may have something to do with the city’s high rankings in startup density and business as primary income source categories. It finished sixth in the tax friendliness category with score of 3.31 out of five.

15. Las Vegas-Paradise

Las Vegas concludes our list with top six finishes in three categories. The city holds the top spot in the startup density category. There are 120 firms that are less than one year old in every 1,000 businesses in the city. With startup density being highest in the country, it makes sense that the city’s rate of new entrepreneurs is also high. Las Vegas gives birth to 420 new entrepreneurs for every 100,000 adults each month. Lastly, the city’s taxes is one of friendliest in the country. Its residents gave it a 3.31 rating out of five to finish sixth in the category.

Methodology

We based the ranking of the 15 most entrepreneurial cities on ten metrics. We then analyzed the data and assigned the following weights for each category based on the category’s importance:

Startup Density – 12.5 percent

This metric is defined as the number of new businesses with employees per capita. These new businesses are less than one year old and employ at least one person aside from the owner. While pop culture may make it seem that startups are easily established, in reality, it takes a lot for aspiring entrepreneurs to start their own company. Usually, several factors must come together before a startup gets established including opportunity, funding, and talent. Therefore, we assigned the highest weight to this metric because cities with high startup density suggest an abundance in opportunity, funding, talent, and other factors that facilitate the founding of a new employer business.

Rate of New Entrepreneurs – 12.5 percent

This category is defined as the percentage of adults becoming new entrepreneurs in a particular month. It includes owners with incorporated or unincorporated businesses. The category also received the highest weight because it complements the startup density category. The latter only covers employer businesses while the former considers both employer and nonemployer businesses. Rate of new entrepreneurs gives us a broad measure of entrepreneurship in any city.

Opportunity Share of New Entrepreneurs – 12.5 percent

This category is defined as the percentage of entrepreneurs in the city who were driven by opportunity rather than by necessity using Census Bureau’s Current Population Survey. In other words, these people were once employees or students but they became entrepreneurs because they saw an opportunity that they could capitalize on. We also assigned the highest weight to this metric because cities that ranked high on this metric provide plenty of opportunities for entrepreneurship.

Venture Capital Investment – 10 percent

This metric shows the amount of venture capital (VC) money from 898 venture firms flowing into the city. With VC money flooding a city, it is easy for entrepreneurs to get funding and start employer businesses. In addition, VC money also helps companies scale in order to meet demand.

Tax Friendliness to Small Businesses – 10 percent

The tax policies of a city can sometimes make or break a business, especially small businesses. Entrepreneurs might get discouraged to continue or pursue their endeavors if they find that a significant part of their revenues go to taxes. On the other hand, cities that adopt tax-friendly policies foster entrepreneurship and business growth.

Business as the Primary Source of Income – 10 percent

Not all entrepreneurs are full-time business owners. Many of them start a business as their side gig to augment their income. We decided to include this metric because cities with a high percentage of entrepreneurs relying on their businesses alone to pay the bills shows demand for the product or service. There’s enough business that these owners don’t have to maintain or take another job.

Infrastructure & Pollution – 10 percent

A city’s infrastructure significantly influences an entrepreneur’s ability to succeed. Access to public transit, presence of quality roads, and short average commute time are factors that facilitate a business owner’s productivity as well as their ability to attract top talent. In addition, a livable environment with plenty of opportunities for recreation attract entrepreneurs as well as investors. On the other hand, lack of infrastructure and high levels of pollution create an environment that makes it difficult for entrepreneurs to grow.

Annual Payroll – 7.5 percent

We included this metric in our analysis because payroll is a good indicator of a company’s overall health. It tells us that companies generate revenues that are significant enough to hire more employees, pay higher wages, or both. Cities that ranked high on this category are most likely home to businesses that are financially doing well.

Nevertheless, we assigned the lowest weight in this category because the amount of payroll can be influenced by a city’s population. Bigger cities like New York have an edge in terms of annual payroll over smaller cities like Milwaukee due to variances in the cost of living.

Number of Firms with Paid Employees – 7.5 percent

Having employees on payroll indicates that there is enough demand for a business that the entrepreneur has had to hire additional resources. The metric hints that there are plenty of opportunities for growth in cities that ranked high.

Nonetheless, we also assigned the lowest weight to this metric because, like the number of paid employees, this category is very susceptible to an economic downturn.

Nonemployer Establishments – 7.5 percent

This metric is defined as the number of businesses without paid employees, identified as sole proprietorships. We decided to include nonemployer establishments because these entrepreneurs make up a huge percentage of US businesses (around 76 percent). This metric gives us a good picture of the health of entrepreneurship in a city.

However, we also assigned the lowest weight to this metric because nonemployers have not yet grown to the point of having employees. They fall short in an important pillar of entrepreneurship which is to provide jobs. They may hire short-term workers, but sometimes, these workers come from other countries. In other words, nonemployer businesses don’t contribute as much to the local economy as an employer business.

Data Sources

Startup Density

We relied on data provided by the Kauffman Foundation which releases the Startup Activity: Metropolitan Area and City Trends report every year. Kauffman used data from the U.S. Census’ Business Dynamics Statistics. For our analysis, we sourced data from the 2017 report. For this metric, cities with higher scores received higher rankings.

Rate of New Entrepreneurs

The Kauffman Foundation also provided the data for this metric, coming from the 2017 Startup Activity: Metropolitan Area and City Trends report. Kauffman used data from the Current Population Survey produced by the US Census Bureau and Bureau of Labor Statistics. Cities with higher percentages received higher rankings.

Opportunity Share of New Entrepreneurs

For this metric, we sourced data from Kauffman Foundation’s Startup Activity: Metropolitan Area and City Trends 2017 report. Kauffman relied on data provided by the Current Population Survey which is produced by the US Census Bureau and Bureau of Labor Statistics. Cities with higher percentages received higher rankings.

Venture Capital Investment

For this metric, we relied on data provided by the National Venture Capital Association (NVCA) which serves as the voice of the country’s venture capital community and acts as a definitive resource for venture capital data. We used 2016 data for our study. States with higher VC investments received higher rankings.

Tax Friendliness to Small Businesses

We sourced data from Thumbtack, an online service provider that helps customers find local professionals. Since 2012, the company has been releasing its Small Business Friendliness Survey which polls nearly 18,000 small business owners. The survey seeks to get the perception of small business owners on whether their cities charge higher state and local taxes. We used the 2016 report for our analysis. Cities that scored high on this metric received higher rankings.

Business as the Primary Source of Income

The Census Bureau’s Annual Survey of Entrepreneurs 2015 provided the data for this metric. Cities with higher percentages received higher rankings.

Infrastructure & Pollution

We sourced data from WalletHub’s Best & Worst Run Cities 2017 for this metric. The report features an Infrastructure and Pollution metric that is based on the following variables:

• Quality of Roads
• Average Commute Time
• Transit Access Shed
• Traffic Congestion
• Walk Score or pedestrian friendliness
• Bike Score or friendliness to bike commuters
• Transit Score or how well the city is served by public transit
• Recreation Friendliness
• Water Quality
• Air Pollution
• Greenhouse-Gas Emissions per Capita
• Share of Parkland

Cities that ranked high in this metric also ranked high in our analysis.

Annual Payroll

For this category, we relied on the data provided by the Census Bureau’s Annual Survey of Entrepreneurs 2015. Cities with higher payroll received higher rankings.

Number of Firms with Paid Employees

For this metric, we again gathered data from the Census Bureau’s Annual Survey of Entrepreneurs 2015. Cities with higher number of firms with paid employees got higher rankings.

Nonemployer Establishments

We relied on data provided by the the Census Bureau’s Annual Survey of Entrepreneurs 2015 for this metric. Cities with higher number of nonemployer establishments were given higher rankings.

Bottom Line: Most Entrepreneurial Cities

Our research reveals that coastal cities are the most entrepreneurial cities in the country, led by Miami, New York, Los Angeles, San Francisco, and San Diego. In comparison, many major inland cities placed near the bottom of our ranking.

What are your thoughts about the results of our analysis on the most entrepreneurial cities? Feel free to share your comments below.