Rankings Startup Ecosystems

The Top 200 U.S. Startup Cities for 2020

The 200 top U.S. startup cities for venture capital (VC) investment for 2020 provide few surprises. The top four startup cities are the same for the third year in a row, and San Francisco holds on to its top spot for its 14th year. However, there are some changes to explore from the industry’s ongoing evolution and the COVID-19 crisis.

1San Francisco, CA12,4822161,3280
2New York, NY7,0561951,1780
3Boston, MA3,651413040
4Cambridge, MA4,565402270
5Seattle, WA1,850412302
6San Diego, CA3,230381962
7Palo Alto, CA1,35231259-2
8Mountain View, CA4,645211434
9Los Angeles, CA1,27929248-3
10Austin, TX79927229-1
11Chicago, IL818261891
12San Jose, CA94523127-1
13Irvine, CA3,077145919
14South San Francisco, CA1,78114724
15Philadelphia, PA75713131-5
16Redwood City, CA1,609111111
17Santa Clara, CA76014902
18Denver, CO70916827
19Menlo Park, CA6241695-5
19San Mateo, CA87511103-5
21Atlanta, GA55117102-5
22Houston, TX65613712
23Santa Monica, CA4521294-3
24Berkeley, CA616125412
25Boulder, CO4141373-2
25Oakland, CA4291371-4
27Columbus, OH57395023
27Sunnyvale, CA372985-5
29Waltham, MA49674127
30Salt Lake City, UT4708357
30Washington, DC28110534
32Bellevue, WA657345-5
33Burlingame, CA593531-4
34Dallas, TX268943-6
35Portland, OR181853-9
36Baltimore, MD17265042
37Fremont, CA4044231
38Emeryville, CA41442115
38Pittsburgh, PA2372135-7
40Culver City, CA682225-10
41Somerville, MA2804250
42Durham, NC167539-4
43Campbell, CA2395240
44San Carlos, CA2587200
44Wilmington, DE14192814
46Arlington, VA11392720
47Los Altos, CA158335-7
48Florence-Graham, CA57134833
49Jersey City, NJ30441421
50Nashville-Davidson, TN128341-2
51Miami, FL12052418
52Ann Arbor, MI109341-20
52Tampa, FL32822028
54Indianapolis city, IN80632-20
55Raleigh, NC73733-4
56Milpitas, CA15951448
57Carlsbad, CA114324-16
58New Haven, CT19621813
59Lincoln, NE17721835
60King of Prussia, PA13031640
61Sandy Springs, GA363212-1
62Sacramento, CA10431651
63Walnut, CA1452178
64Charlotte, NC596121-20
64Goleta, CA28221158
66Tysons Corner, VA77226-17
67Newton, MA9621684
68El Segundo, CA102215-3
69Newport Beach, CA45211334
69Phoenix, AZ58218-23
71Rockville, MD128211142
72Cupertino, CA6421740
73St. Louis, MO37235-12
74Hawthorne, CA2,3362553
75Burlington, MA32421-21
76Minneapolis, MN25523-17
77Scottsdale, AZ10311621
78Kirkland, WA52211100
79North Fair Oaks, CA30625147
80Framingham, MA10711512
81Cary, NC1,79316358
82Carmel, IN3231229
83Plano, TX145110-16
84Cleveland, OH1932346
85Eden Prairie, MN26917192
86West Hollywood, CA29213-31
87Pasadena, CA22218-31
88St. Petersburg, FL5726263
89South Plainfield, NJ16034539
90Gaithersburg, MD13817-19
91Newark, CA971895
91Pleasanton, CA17316-28
93Orlando, FL3129121
93Rochester, NY50112-17
95Wellesley, MA12617-24
96Hillsborough, CA23424532
97University, FL18924278
98Madison, WI14230-13
99Santa Barbara, CA69187
100Boca Raton, FL651857
101St. Paul, MN5219156
102Mercer Island, WA1512447
103Mill Valley, CA1931028
104Woburn, MA32114-57
105Albuquerque, NM11320-1
106Alameda, CA2129-17
107Aliso Viejo, CA301121
108New Orleans, LA32111-24
109Addison, TX2228284
110Marina del Rey, CA243692
111Dover, DE2336429
112Boise City, ID20283
113Skokie, IL1638103
114Lake Forest, CA5216355
115Albany, NY114103
116Richmond, VA2411147
117Nashua, NH7115322
118Beverly Hills, CA14210-39
119Bend, OR3517129
120Providence, RI18113-4
121Irving, TX2618307
122Lewes, DE2035169
123Charleston, SC511515
124Chapel Hill, NC2325416
125Solana Beach, CA4615175
126Long Beach, CA2325414
127Centennial, CO2325204
128Birmingham, AL251795
129Reston, VA7218-12
130Fort Collins, CO4215165
131Santa Fe, NM1427-17
132Calabasas, CA271644
133Coral Gables, FL3615137
134Alpharetta, GA9210266
134Santa Clarita, CA6514256
136Stanford, CA112720
137Omaha, NE4423-41
138Provo, UT300014-86
139Greenwood Village, CO1245489
140Eagleview, PA5514109
140Hayward, CA234016-65
142Northbrook, IL2424253
143Lexington, MA220014-81
144Burlington, VT121106
145Gainesville, FL4214232
145Morrisville, NC191662
147Charlottesville, VA1111122
147Westport, CT1916240
149Missoula, MT2315154
150West Palm Beach, FL2315106
151San Antonio, TX8113-63
152Hoboken, NJ1225337
153Draper, UT1534591
154Foster City, CA29308-86
155Winter Park, FL6313473
156Bedford, MA1516-54
157Redmond, WA27208-26
158Fayetteville, AR627135
158Union City, CA1724382
160Basking Ridge, NJ5713245
160Creve Coeur, MO18209-35
162San Bruno, CA25008-1
163Daly City, CA5284
163Tucson, AZ711153
165Industry, CA5213463
166San Ramon, CA7701349
167Fulton, MD1018-33
168Huntington Beach, CA4513321
169Farmington, CT429249
170Memphis, TN222568
171Cottonwood Heights, UT1116-72
171San Juan Capistrano, CA5114197
173Watertown Town, MA13708-91
174Glendale, CA719226
175Portland, ME917-34
176Santa Cruz, CA62505263
177Arlington, MA72558
178Paradise, NV635450
179Lehi, UT619-102
179Mesa, AZ2014128
179Portsmouth, NH2014361
182Chandler, AZ526307
183Newark, DE619-31
183Trumbull, CT1814357
185San Luis Obispo, CA1024443
186Hoover, AL3013222
187Fort Worth, TX171495
188Kansas City, MO221117
189Vista, CA261377
190White Plains, NY11331034
191San Leandro, CA18605147
192Reno, NV518208
193Corte Madera, CA2413435
194Saratoga, CA7906-100
195North Bethesda, MD5912549
195Orem, UT425266
197Silver Spring, MD425-58
198Poway, CA5512546
199Bethlehem, PA22951
200Manhattan Beach, CA51693

Trends for Startup Cities

US Growth Venture Capital 1985-2020
Percentage of VC in the Top 10 Cities
Houston, TX, Startup City Rank 1985-2020
Vermont Startup U.S. State Rank 1985-2020

Breaking Records

Twenty-twenty was a record year in terms of dollars invested, though a small number of very high-value deals enlarged the aggregate amount. A trend of billion-dollar rounds that began with Lyft in 2017 has continued into 2020. (Yes, Facebook had a billion-dollar round in 2011, but there weren’t any others for six years.) Some billion-dollar rounds are, at least notionally, seed or early-stage investments, like those into JUUL Labs, Quibi, and Rivian Automotive. Most are later stage rounds supporting firms like UberWeWork, and Epic Games as they try to find their exits.

There were four billion-dollar rounds in 2020. These included investments in Rivian, Waymo, SpaceX, and Epic, who had already taken a billion-dollar round in 2018. Epic Games is the main force behind Cary’s, and North Carolina’s, drive up the rankings.

COVID-19 Bump

Even without the billion-dollar rounds, U.S. venture investment levels are now above the dot-com boom’s heights in both nominal and real terms: Both 2018 and 2019 beat 2000 in nominal investment amounts. Twenty-twenty was the first to boast a higher amount than 2000’s U.S. venture capital investment adjusting for inflation.

There were reasons to think that the COVID-19 pandemic might cause a retrenchment in investment. In particular, the U.S. stock markets collapsed from February 12th to November 16th, 2020. Concern over returns to capital might have led L.P.s to reconsider new investments in alternative assets. There was also speculation that some L.P.s might renege on existing commitments to venture funds. Instead, the market for venture capital seems to have had a COVID-19 bump. 

Concentration Among Startup Cities

America has had a long-term trend towards greater concentration of venture capital dollars, deals, and startups within the top 10 startup cities. Over the last decade, the share of venture capital dollars invested in the top ten startup cities rocketed up. It went from about 30% in 2010 to almost 60% in 2018. Other measures of venture activity followed a similar trend. But this seems to have changed in 2020.

Greater concentration could be problematic if some cities are at or past their efficient capacity. For example, Palo Alto has the highest startup density in the U.S. and seems over-crowded with startups. (New York, though, looks like it still has plenty of room for more.) Then greater equality in venture capital across startup cities would enhance growth. So, it’s somewhat enheartening to see the top 10 startup cities’ share back below 50%. Presumably, lockdowns, travel restrictions, and everyone getting used to teleconferencing reduced the benefits to locating in the Bay Area or Route 128 ecosystems.

Is Houston a Startup City?

Houston, Texas, ranked 22nd among U.S. startup cities in 2020. That’s the Space City’s highest ranking since 2002. In 2016, it was ranked 54th, so Houston’s startup ecosystem has had an astronomical recent rise. Moreover, the city’s 2020 ranking components are now fairly evenly balanced: Houston ranked 19th for new deal flow, 24th for dollars invested, and 25th for active startups. (That new deal flow is driving Houston’s ranking suggests good things to come; follow-on rounds should assure more money and active startups in subsequent years.)

Why am I still reluctant to describe Houston as a startup city? Because Houston is the 4th largest metro area by population, the 7th largest by GDP, and boasts that it is home to 4,600 energy-related firms. It contributes just under half a trillion dollars to the U.S. economy each year.

In 2020, H-town added 13 new startups to its venture ecosystem, bringing its total headcount of actively-financed firms to 71. These firms collectively received a little over $650m. So, until someone works out how high-growth-high-tech and oil-and-gas go together, Houston will remain just the Energy Capital of the World. (Also, the space sector moved to California several decades back.)

A Historic Fall

I have written extensively about Houston’s fall in the rankings and the policy initiatives that exacerbated it, as well as the attempts to reform Houston’s startup economy that followed.

The short story is that Houston realized it had a problem with creating and retaining new high-growth, high-tech firms in the late 1990s. The city’s “solution,” announced in 1998 and launched in 1999, was the Houston Technology Center. The HTC then lead Houston to the largest and fastest ranking decline of any former top 20 startup city.

Fortunately, starting around 2011 and picking up pace in 2014, some new initiatives took hold in Houston. These were a mix of private firms and non-profits that were (mostly) unaffiliated with the HTC. Then, in 2016 a group of VCs and serial entrepreneurs with ties to the city started Station Houston, the city’s first startup hub.

Policy Takes Time

It takes a couple of years for a new initiative to take effect: On average, a startup is just under a year and a half old when it receives its first seed round, and over two and a half if its first round is a Series A. So the effects of policy in 2018 are just now starting to be felt. Twenty-eighteen was a big year for bad startup policy in Houston:

Market Forces

Of course, many other things were going on in Houston’s startup ecosystem in or around 2018, and some of them were positive. So, on balance, it looks like Houston’s prognosis is fair-to-good, despite its abysmal policy history.

First, deal flow surged to record highs in 2018. Houston was getting around six new deals each year from 2010 to 2016. In 2017, Houston got nine first-time venture investments, and in 2018 it got 17, before falling back to 13 new deals each year in 2019 and 2020. The two drivers of this boom were Station’s efforts before its takeover and Houston’s biotech scene, which finally found some legs: Liongard and Arundo Analytics were both Station residents that secured a first-round of VC in 2018 (and went on to raise almost $50m combined), and life science startups Vivante Health, Wellnicity, and Trilliant Surgical all got their first rounds that year. (Data Gumbo, a client of The Cannon, also got its first round in 2018.)

Second, many for-profits, non-profits, academics, and policymakers across the state were working hard to build high-growth, high-tech expertise and capabilities in Houston in 2018. This effort has translated into a wealth of new initiatives, programs, and ecosystem support organizations in 2020. Credit is particularly due to Lori Vetters, who led efforts to reach out to non-Houston accelerators despite being shunned by many Houston startup scene members for her lack of high-growth, high-tech pedigree. (Lori replaced Walter Ulrich and tried to reform the HTC.) Both the Texas Foundation for Innovative Communities in Austin and my team at the McNair Center for Entrepreneurship and Innovation also deserve honorable mentions.

Building Better Biotech

The Texas Medical Center Innovation Institute (TMC-II) got off to a rough start with its various initiatives, which included the TMCx, JLabs@TMC, and the AT&T Foundry. For instance, publicly-traded firms generally don’t attend startup accelerator programs, but Bellicum Pharmaceuticals was an early client of JLabs@TMC. Bellicum was the HTC’s sole IPO and listed on the NASDAQ. (It’s worth noting that JLabs@TMC has removed Bellicum from their publicly-available client lists. And that the TMC-II still appears to report Bellicum’s IPO proceeds in their “raised to date” stat.)

Nevertheless, the TMC-II’s program quality increased materially in late 2016 and reached a decent standard a few years later. Furthermore, John Reale, the former CEO of Station Houston, founded Integr8d Capital and shifted his focus to life science startups in 2018. He later became the entrepreneur-in-residence at the TMC-II as well. J.R. was crucial to Houston’s first market-driven reformation effort and is likely an essential factor in its second one too.

The Green Mountain State

I also keep tabs on things going on in Vermont’s startup scene. Vermont is home to a tiny but growing startup ecosystem. In the 1990’s Vermont got around one new deal a year, and by the 2010s, Vermont averaged two and a half new deals a year. The U.S. doubled its deal flow over the same period, so, proportionately, Vermont is outpacing U.S. national growth. But in absolute terms, Vermont doesn’t have much. Since its first deal almost forty years ago, Vermont has received 125 rounds of VC., totaling just over $400m, into 56 companies. A top 30 city can comfortably achieve those numbers in a few months.

Agglomeration Powers Startup Cities

Historically, Vermont’s startups were mostly spread out down the I-89 east from Burlington. Vermont’s startup success stories include and Seventh Generation in Burlington, SunCommon in Waterbury, Keurig Green Mountain, which was up the road in Stowe, and Northern Power Systems in Barre. The jewel in the Green Mountain crown, though, is Casella Waste Systems in Rutland. (Casella has a surprising number of patents.)

Most of Vermont’s venture capital has gone into companies in Burlington though, which has increasingly dominated the state’s tech scene. This trend towards fewer startups outside of the Queen City is both good and bad. In the long-term, denser agglomeration is a powerful force for startups. But in the short-term, having fewer non-Burlington startups means having fewer startups. Until Burlington ups its game, or non-Burlington startups return, the state looks set to stay in the ebb part of its gentle ebb-and-flow in the bottom end of the U.S. startup state rankings. 

Up and Down

Burlington is the only place in Vermont to make the top 200 startup cities list in recent history, and it has done so every year from 2014 to 2020, except 2016. Rutland, Vermont, made the top 200 list in 1994. Twenty-twenty is Burlington’s second-best year ever. (It has lagged well behind Burlington, Massachusetts since the 1980s, but has bested Burlington, North Carolina, handily every year since 1998.) But, with a rank of 144th and just one new deal and two follow-on rounds, it’s hard to describe the People’s Republic of Burlington as a real startup city.

Among the 50 states, the District of Columbia, and Puerto Rico, Vermont has consistently ranked in the mid to late-thirties. In 2020, there were no new deals and no follow-on rounds outside Burlington, and Vermont takes 40th place in the U.S. startup state ranking. 

Startup Cities Ranking Methodology

The startup cities ranking uses an open methodology that anyone can use and recreate, and data on the top 200 startup cities from 1985 to 2020 is freely available.

This article’s results are based on data from Thomson Reuter’s VentureXpert, who survey venture capitalists. The rankings consider only data on “growth venture capital. ” Growth venture capital is seed, early, or later-stage investment into privately-held, (predominantly) high-tech high-growth startups. (The main alternative is transactional venture capital, which includes investments into publicly-traded firms and large non-tech incumbents).

The reported rankings are a rank-of-ranks over three measures that capture related but different aspects of a city’s startup ecosystem:

  • The amount of venture capital dollars invested.
  • The number of new deals (i.e., startups receiving VC for the first time).
  • The number of actively-funded startups (i.e., startups receiving stages of VC and working towards an exit).

Read the Houston Growth vs. Transactional VC Report

Houston’s high-tech ecosystem can only flourish if it attracts more growth venture capital investments, according to the latest McNair Center for Entrepreneurship and Innovation issue brief, “Growth vs. Transactional Venture Capital in Houston, Texas.”

A realistic, but aggressive, goal for Houston would be around a 15 percent year-on-year increase in growth venture capital. This would allow Houston to reach roughly $170 million in growth venture capital by 2022.

According to the report, “Houston would then likely become a top 25 U.S. city for high-growth, high-technology startups, though its ecosystem would still be emerging and startups would remain a very small part of Houston’s economy.”

McNair Center Startup Ecosystems

Houston’s Next Step: The Role of Funds of Funds in Venture Capital

Recently, Houston Exponential announced plans to create a venture capital Fund of Funds (VC FOF) to support the local entrepreneurship ecosystem. This strategy has been used by other cities and regions, such as Michigan and Cincinnati, to spur local startup growth. Private firms also offer VC Fund of Funds. What does this type of fund look like, and how has it played out in other locations?

The Basics

FOFs are funds that invest in multiple smaller funds. The increased diversification that they offer investors makes them attractive. However, there is a risk of overlap with FOFs; the many funds that make up the FOF may invest in the same entities. FOFs also may carry additional fees over a traditional fund because the the investor also has to pay the fees for the funds that constitute the larger FOF.

A VC FOF specifically invests in multiple venture capital funds. These venture capital funds then invest in local startups, entrepreneurs, and small businesses investment. FOFs diversify investors’ portfolios by ensuring investment in a wide variety of companies. Many venture capital funds make up VC FOFs,  so their success depends on what investments the constituent VC funds make. In the private sector, the advertised appeal of  VC FOFs is diversification, early liquidity, and enhanced fund returns.

FOFs can also exist through firms that typically invest in mature companies and buy all of each company’s equity, known as “Buyout FOFs.” The Chicago Booth Review claims that VC FOFs offer more diversification than Buyout FOFs, with an average of 7 more individual funds in each VC FOF. The research also indicates that VC FOFs are “more likely, through fund selection and/or access, to overcome their additional layer of fees” than buyout FOFs. This suggests that VC FOFs may bring investors higher value than buyout FOFs.

Impact on Cities

The trend towards creating VC FOFs to boost local innovation began about a decade ago. In 2008, Michigan created the Renaissance Venture Capital Fund. The premise behind the fund was simple: “Venture capital is important for economic growth and [Michigan is] underserved in the amount of venture capital available to fund exciting new ideas and technologies.” By investing specifically in VC funds that are active in Michigan, the Renaissance VC Fund provides the necessary capital for Michigan startups to grow and thrive.

Currently, the fund claims to receive a 21:1 return on every dollar they invest. With this success, they have grown; the fund has offices in both Ann Arbor and Detroit. Figure 1 shows the spike in investment and deals following the introduction of the Renaissance Fund. However, investment and deals seemed to have tapered off in recent years. Nonetheless, the new plateau does seem to be slightly higher than the average values before the fund was introduced.

Figure 1: Michigan saw large increases in investment in 2010 and 2011. Deals then peaked in 2013. Michigan introduced the Renaissance Fund in 2008.

In 2012, Cincinnati created a fund modeled on Michigan’s Renaissance Fund. Cincinnati-based corporations, like Kroger and Proctor & Gamble, created the Cintrifuse Early Stage Capital Fund I, LLC, which exclusively makes seed and early-stage investments in local startups.

According to Cintrifuse, the fund has resulted in a net increase of $24 million in value to the city. Figure 2 shows the spike in deals in both 2012 and 2014. Investment also peaked in 2014, relatively soon after the fund’s introduction. Nonetheless, the introduction of this program seemed to have no noticeable impact on Cincinnati’s overall GDP in 2012 and afterwards. The number of deals and amount invested have also declined substantially since 2014.

Figure 2: Cincinnati’s VC deals spiked in 2012 and 2014. The city created Centrifuse in 2012.

What Will This Mean for Houston?

VC Fund of Funds seem to carry benefits for both investors and local VC/startup culture. However, no plan to boost growth is a guaranteed success. Michigan and Cincinnati have demonstrated that it is difficult to maintain momentum with these funds. These cities’ experiences teach us that the fund needs to place a sustained emphasis on providing capital to the local region. McNair Center research indicates there are about 50 VC firms in Houston. This means that there are firms for which the FOF can provide capital. These VC firms can then disburse funds to local businesses.

On the other side of the equation, Houston will need local entrepreneurs and startups in which VC can invest. According to McNair Center research, there are approximately 20 startups active within the 610 loop. However, looking outside the loop to the greater Houston area, there is an abundance of startups. Nonetheless, the industries in which these startups focus may not be as desirable for investors as others. Houston’s startups do not tend to focus on one specific industry, although medicine and energy are popular. Since tech is one of the most desirable fields for investment right now, Houston’s tech startup scene may need to develop further if a VC FOF is to succeed.

Both sides of this equation need to be present in order for VC FOF to successfully boost the city’s innovation scene. If this is the case, there is hope that a VC FOF could provide a welcome boost to Houston’s ecosystem.


Read the Houston Entrepreneurship Pipeline Report

This paper examines the startup training institutions in Houston, Texas, and what they are doing to open up the city’s pipeline of startup firms.

Recent academic research has shown that startup training institutions can have an enormous positive effect on an ecosystem’s growth. A good ecosystem pipeline turns out a large quantity of high-quality startup firms that have received top-tier training. Houston’s accelerators and incubators do not perform at the levels of benchmark institutions. The quality of deal flow coming from its accelerators, incubators, and hubs will be crucial to Houston’s future.

McNair Center Startup Ecosystems

Development of Research Parks and Innovation Districts in Houston

On May 4, Houston Mayor Sylvester Turner stated his support for building a data science center. The next day, he endorsed plans for an Innovation District. How would these types of development promote entrepreneurship, innovation and economic growth in Houston?

The Basics

What are Research Parks, like the proposed data science center, and Innovation Districts?

Research Parks promote research, technological development and commercialization by creating a high density of universities and research institutions within a small area. By placing many innovative researchers and developers in close proximity, Research Parks encourage growth of new companies and collaboration across fields, driving technology-based economic development.

The Brookings Institution defines Innovation Districts as dense areas that bring together research institutions, high-growth firms and startups through thoughtfully designed and resource-rich commercial and residential spaces.

Research Parks and Innovation Districts slightly differ in their implementation, but both spaces aim to accomplish similar goals; they want to create physical hubs for innovation and entrepreneurial development. Typically, developers build Research Parks on new land, cultivating previously undeveloped space. Innovation Districts, however, use old land. This land was previously developed but is no longer in use.

Attribution: ShareAlike 2.0 Generic (CC BY-SA 2.0)
Silicon Valley is a well-known Innovation District.

Both Research Parks and Innovation Districts are generative and can be helpful in stimulating local economies. Stanford Research Park in Palo Alto and Research Triangle Park in Raleigh-Durham are some of the most well-known examples in the United States. Research Triangle Park is the largest in the country and one of the largest in the world. Stanford Research Park played a key role in the creation of Silicon Valley.

Successful Innovation Districts include Kendall Square in Cambridge, Massachusetts, South Lake Union in Seattle and Over-the-Rhine in Cincinnati.

What Makes These Areas Special?

Research Parks and Innovation Districts are highly productive areas. Innovation leads to new ideas and job creation. According to the Association of University Research Parks, each job in a Research Park generates approximately 2.57 additional jobs. Thus, the more than 300,000 Research Park employees in the United States lead to 700,000 additional jobs.

Innovation Districts can also produce strong results. By placing many innovators in close proximity to one another, they facilitate collaborative interactions. As Innovation Districts vary greatly in size and productivity, an accurate estimate for job creation is unavailable.

Key Factors: The Capital Stack

Layered financial tools known as a “capital stack” are necessary to promote the development Research Parks and Innovation Districts. For a capital stack that attracts investors, an area must have access to multiple types of equity, incentives and debt to provide flexibility to developers and innovators.

Developers may be able to secure planning grants through the U.S. Economic Development Administration to create the Research Park or Innovation District. These are “designed to leverage existing regional assets and support the implementation of economic development strategies that advance new ideas and creative approaches to advance economic prosperity in distressed communities.” Even though Innovation Districts are built on previously developed land, the government still issues planning grants because they “advance new ideas and creative approaches to advance economic prosperity in distressed communities.”

Tax credit bonds are also common debt instruments. Instead of taking on loans, municipal governments sell bonds, which provide tax credits in lieu of interest payments. Some examples are Build America Bonds, Recovery Zone Economic Bonds and Clean Renewable Energy Bonds.

Equity is also an important necessity. Investment can be incentivized from a variety of sources, like New Market Tax Credits. These give tax credits to investors who make equity investments in Community Development Entities in developing and low-income communities. Housing and Urban Development community development grants and state or federal tax relief programs can also incentivize investment.

Key Factors: Social Factors

The final piece of the puzzle to create a Research Park or Innovation District is social organization. In order to facilitate collaboration and innovation, physical, intellectual and social resources need to be readily accessible.

Networking assets—“the relationships between actors—such as individuals, firms and institutions—that have the potential to generate, sharpen and accelerate the advancement of ideas”—are essential for the development of Innovation Districts. The lines of communication between developers, researchers and sources of funding must be open and easily accessible. This synergy is enhanced in Innovation Districts through the close proximity of ecosystem participants and access to shared meeting and collaboration spaces.

The Potential for Research Parks and Innovation Districts in Houston

Many cities have developed Innovation Districts in effort to grow local entrepreneurship and innovation. Turner’s announcement of the planned Innovation District earlier this month mentioned the 40,000 jobs created by Chicago’s efforts to spur innovation. Turner noted, “It is now time for us to be more competitive, to further diversify and expand our economy. What Chicago can do, Houston can do better.”

In 2015, the University of Texas bought 332 acres of land in southwest Houston with the hopes of developing it into a small Research Park. However, in March 2017, UT Chancellor William McRaven canceled the site’s plans for development. The Houston Chronicle cites timing and lack of transparency as the main causes for the cancellation.

However, there may still be potential for a Research Park in Houston. Mayor Turner also expressed support for the proposed data science center, urging the University of Houston to take the lead. The Chairman of the University of Houston Board of Regents, Tilman Fertitta, has spoken positively about this idea, mentioning excitement about the prospect of collaborating with Rice University, Texas Southern University, Texas A&M University and the University of Texas through the development of a data hub.

Bill Gropp, the acting director of the National Center for Supercomputing Applications, recently stated that there is far more demand for Research Parks than there is supply. It is clear that the development of a Research Park or Innovation District would stimulate the economy and create jobs. If Houston wants to take advantage of these opportunities, the time to act is now.

McNair Center Rice Entrepreneurs Startup Ecosystems

How to Make Texas More Startup-friendly

profileOver the last decade, Blake Commager (@commagere) has raised over $12 million in venture capital funding, started seven companies and sold fiveincluding the first version of Facebook Causes and some of the most popular apps on Facebook, such as Zombies and Vampires. Born and raised in Midland, Texas, Commager graduated from Rice in 1999 and moved to the San Francisco Bay Area in 2003.

Commagere is the CEO of MediaSpike and an angel investor, advising several startups in the Bay Area. His varied experience in the tech startup space, from founder to investor and mentor, gives him a comprehensive perspective on the Silicon Valley startup ecosystem. As Commagere worked at a startup and tried to start a company in Austin before moving out to Silicon Valley, I was interested in learning why he chose to move out to the Bay Area and what Texas could do to better support startups.

Iris Huang: What brought you to the Silicon Valley?

Blake Commagere: I had always been interested in solving the problem of address book updating. In 2003, a friend of mine and I were working on our own company in Austin, and while doing competitive analysis, we found out Plaxo, a startup in Mountain View, California, was trying to solve the same problem. I liked their solution and they already had funding so I moved here to join the company.

I also felt the pressure to move to the Bay Area. By virtue of having a high concentration of tech talent, the Bay Area created a gravitational pull for even more tech talent. You see that with a lot of industries—they blow up largely in a few cities and as the ecosystem develops around them, the momentum increases, which makes it harder for other cities to compete. The more talent it has, the more successful the industry becomes in the region, the more new talent comes. The concentration of talent creates a virtuous cycle—in the Bay Area, the former successful startup founders become the next generation angel investors and venture capitalists, who fund and help more startups succeed.

The concentration of talent in the Bay Area has two main advantages:

The sheer concentration of talent and ecosystem make the process of building a startup easier, not a lot easier, but even if it’s just 2 percent easier, that makes all the difference. Given how hard it is to build a company, anything that makes it a little easier can be incredibly important. The high concentration of talent in the Bay Area makes it easier for startups to hire good employees. Startups will also have an easier time meeting people who can provide advice and introduce them to investors.

The large tech community in the Bay Area also provides a lot of emotional support, which turns out to be extremely important for startup founders. What’s unique about entrepreneurship is the combination of the high level of stress and lack of experience and resources. It’s very intimidating as an entrepreneur when you have a dozen things you have to do today but you have no idea how to do any of them. No business school teaches you what you need at a startup day to day. Sometimes other founders can’t help you either, but at least, you can commiserate with them. For example, after you pitch to a dozen VCs and no one wants to invest, you can talk to your community—they’ve all been through the pain so they understand how you feel. The therapeutic value of the commiseration is really important. You won’t feel so lonely, which, in addition to the hardship of building a company, could be overwhelming.

IH: How can Texas cities become more friendly to founders?

BC: A good ecosystem for startups cannot be developed overnight. It takes several entrepreneur/venture capital cycles—maybe over 20 years.

Someone should have a laser focus on building the tech community so entrepreneurs no longer feel alone in their journey. What entrepreneurs are trying to do is just too overwhelming to do on their own. They will leave for somewhere that has a supportive community if they can’t find the mentorship and network locally. In Austin, most of the time meetings happen by chance. Serendipity is unreliable—someone needs to build a tight knit community and make sure the support network is well-organized.

Someone has to bring capital there. No matter how great the idea is, you need to have money to fund it and make it happen. The number of VC firms and the amount of VC funding in Texas are limited (Note: total VC funding in Austin is $834 million, as compared to $25 billion in Silicon Valley according to the MoneyTree Report from PricewaterhouseCoopers). In Silicon Valley, there are so many funds; a startup can be rejected by a dozen of the top VC firms and still be able to raise funds from hundreds of other VCs. However, in Austin, if you pitch to Austin Ventures and they say no, your fundraising is over.

Also, with a small number of VCs, their time is limited so they can only invest in a small number of companies. Imagine if there are 100 great startups that deserve to be funded but there are only six general partners in your region. Simply for lack of VCs, some of these companies won’t get what they need to survive.

IH: Why is it necessary to raise VC funds locally?

BC: Silicon Valley VCs are unlikely to invest in startups in Texas. VCs have strong motivation to invest in nearby companies because the nature of venture capital investing—95 percent of startups fail—forces them to use their time wisely. VCs usually take board seats at the startups they invest in. Every board seat they take is an opportunity cost, preventing them from taking others. When VCs invest in startups in other cities, they have to travel for board meetings. So the time they spend on that board seat is longer and the opportunity cost for that investment is higher. That’s why you can’t expect Bay Area VCs to invest in Texas startups and when they do, the bar might be three times higher for Texas startups than Bay Area startups.

Funding is not the only value VCs provide for startups; their professional network plays an important role in helping startups succeed as well. However, VCs’ network is geographically dependent. If the startups are far away, they will not be able to benefit from VCs’ powerful network. This lowers their chance of success. This also discourages VCs from investing outside their primary cities.

Raising a fund to start a VC firm in Austin or Houston could be challenging—the new VCs will have to take the extra step to convince potential limited partners that “there is a reason and opportunity to invest here,” instead simply joining all the other VCs are in the Bay Area. However, this is what has to happen. Ideally, the new VCs have built their career and network in Texas for many years, which gives them the motivation and ability to raise a fund locally.

IH: How can Texas cities retain local talent?

BC: It all comes back to the availability of VC funding. Frequently I see announcements that a city is hoping to make the city more attractive to startups with programs for office space or professional services. None of that is a big expense compared to your employee costs. Some people argue that since everything is more expensive in the Bay Area, it makes sense to stay in Austin or Houston. For example, with $1 million funding, you might be able to hire 10 employees in Houston, but in the Bay Area, you can only hire 5 employees with similar credentials. However, this is an unrealistic comparison. In Houston, you are more likely to get $0 funding so really you can’t hire anyone while in the Bay Area, you might be able to get $1 million and hire 5 employees.

Each entrepreneur has their own timeline—when they need to raise funding, if there’s no funding available in Austin or Houston, they either have to shut down their startups or move to the Bay Area and raise money here. Right now everyone just follows the gravity and moves to the Bay Area because that’s the easiest. Texas is losing the tech talents and startups that create so many jobs to the Bay Area. It is very important to break the cycle. Step one is to stop the talent drain with VC funding and keep startups here. As the ecosystem matures, the long-term goal is to make it as easy to raise funding in major Texas cities as in the Bay Area.

McNair Center Rice Entrepreneurs

Spotlight on Rice Entrepreneurs: An Outlet for Owlets

An Outlet for Owlets: New Opportunities for Entrepreneurship and Innovation at Rice

On November 15, the Princeton Review ranked Rice University’s Jones Graduate School of Business third in the top graduate programs for entrepreneurship. For the past eight years, the Jones School’s entrepreneurship program has ranked in the top 10 in the nation. In addition to the Jones School’s ongoing success, several programs focus on undergraduate entrepreneurship and innovation. Recently launched programs promote entrepreneurship through student-led efforts and university-sponsored initiatives.

Consolidating student-led efforts

At the end of Spring 2016, two undergraduate entrepreneurship clubs, Rice Launch (led by Ben Herndon-Miller and Jake Nyquist) and Rice Conversations (led by Iris Huang and Doria Du), merged to form the Rice Entrepreneurship Club. The new club organizes a variety of events, including casual lunch conversations with entrepreneurs, pitch practices and mentor workshops.

Working closely with the Rice Alliance for Technology and Entrepreneurship and the Rice Entrepreneurship Initiative, the club shares opportunities and resources to encourage greater student collaboration. “I think the merge empowered the student leaders from both clubs to better serve student entrepreneurs at Rice,” said Iris Huang ’17, President of the Entrepreneurship Club. “With the substantial pool of combined resources, we are now able to put on more diverse programs and make a larger impact on the student population.”

Developing university-wide programs

In March 2016, Rice alumnus Frank Liu and his family gave $16.5 million to establish the Liu Idea Lab for Innovation and Entrepreneurship (Lilie). Headed by Dr. Yael Hochberg and Dr. Abby Larson, Lilie gives students access to the expertise and experiences that will help them launch their own enterprises.  Beginning next spring, courses offered through Lilie will encourage students to solve real-world problems while working with faculty and entrepreneurs. The Lilie New Entrepreneurs Grant will help incoming freshmen, starting with the Class of 2020, to fund their business ventures. Before matriculating, freshmen can apply for the $10,000 grant that funds the most creative and compelling business ideas.

Learning from entrepreneurs

Students listen to Scott Novich and Evan Dougal from Neosensory.
Students listen to Rice alumni Scott Novich and Evan Dougal from Neosensory.

Through casual conversations and more formal lectures, the Entrepreneurship Club and Lilie have emphasized directly connecting students with entrepreneurs.

On September 15, the club hosted NeoSensory, a startup co-founded by Scott Novich (Rice PhD ‘16). NeoSensory mathematically maps data streams with temporal characteristics to develop a vest that helps the deaf experience sound through touch. More than 70 attendees learned about the product development timeline, the investment process and university intellectual property licensing through the perspective of a startup.

More recently, on October 19, the Rice Entrepreneurship Club hosted a conversation with Shaan Puri from Monkey Inferno, a San Francisco incubator that turns Internet project ideas into successful businesses. Monkey Inferno sold Bebo to AOL for $850 million in 2008 and currently uses that money to fund new projects. Puri shared his perspectives on forming teams and overcoming conflict and disappointment. Additionally, he advised students to become “learning machines,” always looking to learn more and improve. To achieve momentum, Puri encouraged aspiring entrepreneurs to dedicate time each day to their business idea.

Shaan Puri from Monkey Inferno Skypes in from the Silicon Valley to speak with Rice undergraduates.
Shaan Puri from Monkey Inferno Skypes in from the Silicon Valley to speak with Rice undergraduates.

As part of the Lilie Lecture Series, Dr. Larson hosted an event with Samantha Snabes on October 26. Snabes served as the Entrepreneur-in-Residence and Strategist at NASA and founded re:3D, which makes 3D printing more accessible and scalable. During the lecture, Snabes spoke about taking big risks and establishing strong relationships with peers and mentors. When asked about the differences between the startup cultures of the Silicon Valley and cities in Texas, Snabes noted the benefits of being located in Texas while Austin, Dallas and Houston are growing as centers of startup activity.

Dr. Larson explains, “The Lectures bring together expertise and energies from across Rice and Houston. Each Lecture features the insights of an established entrepreneur or innovator on a question of interest to people working across a range of fields. The Lectures provide an opportunity for the exchange of questions and ideas between people who are innovating in many different contexts, and as such, often lead to new and shared insights.”

Engaging undergraduates in entrepreneurial activity

November 4-6, Rice and University of Houston students used this advice to develop technology ventures at 3 Day Startup. During the event, 45 students worked together in 9 teams at TMCx. Prototypes included an Airbnb-style app that connects travelers with locals for authentic meal experiences, a frictionless rental service for household tools and a marketplace where artists can cater to consumers’ requests for original artwork.

Maintaining momentum

The increased focus on entrepreneurship and innovation on campus is promising. This spark will attract more entrepreneurial talent and advance Rice University’s reputation as a hub for innovation.

McNair Center Small Business

Immigrants and Entrepreneurship

Embracing Immigrant Entrepreneurs

Every day Sharan Gahunia, owner of Raja Sweets in the Hillcroft area of Houston, Texas, sells mithai and other Indian pastries in the shop her father founded over 30 years ago. When Raja Sweets first opened up, there was little South Asian cuisine and culture within Houston, but through hard work and entrepreneurship, South Asian immigrants like Gahunia have helped turn the Hillcroft area into a booming cultural center officially recognized as the Mahatma Gandhi district.

Immigrant entrepreneurs like the Gahunia family are a key factor in American small business and entrepreneurship. 

Where are Immigrant Entrepreneurs from?

Immigrant entrepreneurs are a diverse and growing group. According to statistics from the 2013 American Community Survey, the vast majority of immigrant business owners, 23.4%, originate from Mexico, reflecting the large and long-standing Mexican immigrant population in the United States. The next three countries of origin in terms of raw number of business owners are Korea with 5.1% and India and Vietnam with Houston's Chinatown is home to many immigrant-run small businesses. each.

Examining the percentage of business owners by country of origin provides further insight. Iran appears to be the largest exporter of entrepreneurs, with nearly 1/4, or 24.4%, of Iranian immigrants in the U.S. owning a business. The next three countries of origin with the highest rates of business ownership are South Korea with 23.1%, Brazil with 21.0% and Italy with 20.1%.

Educational Extremes and Type of Work

The survey also shows that the distribution of educational degrees among immigrant entrepreneurs is statistically bimodal. 29.8% of immigrant business owners possess a college degree, yet 25.7% of them, the second largest portion, do not have a high school degree. This wide range of educational backgrounds may reflect differences in the immigrant entrepreneur’s countries of origin.

Immigrant entrepreneurs tend to live in the larger states, with 27.8% in California, 11.8% in Florida, 10.7% in New York and 10.5% in Texas. Most immigrant entrepreneurs own either construction or professional service firms, representing 17.2% and 16.7% of all immigrant owned small businesses, respectively. However, the type of work immigrant entrepreneurs engage in is diverse, ranging from agriculture to wind-power generation. A surprising 16.2% of all immigrant owned business fall into the impossible to categorize category “other.”

Small Business Entrepreneurs

In 2012 the Small Business Administration reported higher rates in business ownership and business formation among the U.S. immigrant population as compared to the non-immigrant population. The SBA further found that immigrant-owned businesses tend to export to the global market at a disproportionately higher rate as well.

In 2014, the Kauffman Foundation found that the percentage of small businesses owned by immigrants more than doubled from 13.3 % in 1996 to 28.5% in 2014. The foundation also showed that immigrants did as well or better than native-born entrepreneurs with “opportunity entrepreneurship.” Immigrants are skilled at finding and filling market gaps — such as the unmet demand for Indian pastries the Gahunia family exploited.

Research even suggests that immigrant entrepreneurs perform better as compared to non-immigrant entrepreneurs. In a 2015 study, economists Robert Fairlie and Magnus Lofstrom found that immigrants were well suited to entrepreneurship. They listed ties with already existing immigrant populations, high amounts of family savings, and a lack of pre-existing career, as factors the may make immigrant entrepreneurs particularly successful.

High-technology Entrepreneurship

In the world of high-technology, high growth entrepreneurship, the National Venture Capital Association (NVCA) reported that, “If immigrant-founded venture-backed public companies were a country, then the value of its stock exchange would rank 16th in the world, higher than the exchanges of Russia, South Africa and Taiwan.”  These trends hold for privately held venture-backed companies as well. The study found that immigrant entrepreneurs started 30% of these businesses.

Even outside of high-growth start-up firms, immigrants have a strong positive impact in high-technology. For example, the University of Michigan showed that total computer science employment would have been 3.8% between 9.0% lower if immigration were held at 1994 levels.


Looking toward the Future

The NVCA study reported that 78% of immigrant entrepreneurs started their business while either on an H1B employer-sponsored or a F-1 international student visa. Overall, there is strong evidence that immigrants perform better as entrepreneurs than native-born individuals and that they are a boon to the U.S. economy. Reforming immigration policy to encourage yet more immigrant entrepreneurs would therefore contribute to America’s prosperity in the 21st century.