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The Top 10 Rising Cities For Startups

Denver came in at #4 in a recent list posted by Forbes - Top 10 Rising Cities for StartUps. Denver is an exciting place for entrepreneurs to bring their ideas thanks to an incredibly skilled workforce and an infectious 'work hard, play hard' culture.

You can read the article below that was originally published by Forbes, here.

By: Kurt Badenhausen Forbes Staff

Tony Franco and his two fellow founders of SafeChain Financial joined together through a local venture accelerator in 2016. They each made career bets on blockchain technology and went in search of funding last year. Investors were attracted to the leadership team and their goal to use blockchain to solve real-world problems. The company raised $3 million in VC money despite a lack of any meaningful revenue.

These stories are ubiquitous in San Francisco, Boston and New York, but SafeChain, which uses blockchain to facilitate real estate transactions, is based in Columbus, Ohio. The 20-person firm was asked repeatedly about relocating to the coasts during its fundraising but has no plans to abandon the Midwest.

“Columbus has created meaningful partnerships between accelerators, government, corporate incumbents and startups,” says Franco. “The benefits are real today, and go beyond the marketing hype many cities claim when they say they are startup friendly.”

Seventy-six percent of venture capital money in 2017 was concentrated in California, New York and Massachusetts, with Silicon Valley, New York City and Boston the primary beneficiaries. The tally is up from 72% in 2012 and 64% a decade ago, according to the National Venture Capital Association.

But the generational wealth created by Silicon Valley companies like Apple, Google and Facebook has created high prices inside and outside the startup world. Median home prices are $1.1 million in San Francisco, and business costs are 57% higher than in St. Louis and 54% greater than Atlanta, according to Moody’s Analytics (San Jose homes are $1.4 million). Some investors are looking beyond the coasts for their next score.

One of those investors is Steve Case. The billionaire co-founder of AOL co-founded DC-based VC firm Revolution in 2005 and has been running it ever since. He launched his Rise of the Rest seed fund in 2014 to fuel startups in underserved cities. He made a splash last year with a $150 million Rise of the Rest early stage fund. The fund’s investment roster features some of the richest, most successful Americans in business: Jeff Bezos, Sara Blakely, Dan Gilbert, Henry Kravis, Eric Schmidt, Howard Schultz, Meg Whitman and more.

“The goal is to level the playing field so everybody, everywhere who has an idea has a shot at building a company and the American Dream,” says Case. It’s also good business. “It is a great arbitrage because there is less capital focused on those places and valuations are lower,” he says. “Maybe there is too much capital in Silicon Valley, maybe valuations are too high? There is not too much capital in St. Louis or Columbus.”

With that in mind, Forbes in conjunction with knowledge partner Revolution took a quantitative approach to identify 10 emerging cities for startups that are poised to thrive in the decades ahead. Columbus finished first, as the Ohio capital scored highly for its college presence, low costs (business and living), increase in VC deals, and the high number of funds launched since 2013.

Columbus venture capitalist Rich Langdale started the Center for Entrepreneurship at Ohio State University in 2001 to promote innovation and entrepreneurship (Langdale ran it for two years on a volunteer basis). SafeChain’s Franco says those seeds planted at OSU nearly 20 years ago are paying dividends now. SafeChain won the Rise of the Rest bus tour pitch competition in Columbus last year and a $100,000 investment.

VC deal values topped $250 million in Columbus for the first nine months of the year. It’s only 1/100th of the total over the same time period in San Francisco, but the investments in Columbus startups to date this year are already more than triple the total value for the 12 months in 2016, per venture capital data experts PitchBook.

Columbus has established a robust startup culture thanks in part to the role of venture funds for some of the city’s biggest companies. Nationwide, State Automobile Mutual Insurance and Grange Insurance all created funds in recent years to support startups. With financing available to build companies, Columbus has done a better job of retaining post-graduation talent from places like Ohio State, which has 60,000 students on its Columbus campus. The working-age population in the city has grown 9% over the past five years, in sharp contrast to the declines in many of its Midwest rivals.

The public-private partnership in Columbus is exemplified by the follow-up to the $40 million awarded the city in 2016 by the Department of Transportation, as part of the federal Smart City Challenge. Private sector investments have parlayed the original $40 million into $500 million, with a final goal of $1 billion, to help transform the city’s transportation system.

“Creating the right policy incentives and engaging the big business community are both critical in helping startup communities grow and thrive," says Case.

To come up with a list of emerging startup cities, we eliminated the 10 metro areas that garnered the most VC funding over the past three years: San Francisco, New York, Boston, San Jose, Los Angeles, San Diego, Seattle, Chicago, Washington, D.C. and Austin. The drop-off in VC money over that period from Austin to No. 11 Atlanta is more than $500 million, according to PitchBook data.

Forbes compared the 30 largest metro areas, outside of the 10 above, on 13 metrics related to costs (business and living), education levels, college presence, entrepreneurship rates, working-age population growth and venture capital investments (density, total number, dollar value and growth). Data was provided by PitchBook, Moody’s Analytics and the Kauffman Foundation.

Cheaper business costs are a major advantage for many of these emerging startup cities. In Charlotte, which ranks ninth in our top 10, business costs for labor, rent, taxes and energy are 12% below the U.S. average, according to Moody’s Analytics. SafeChain’s Franco says he can secure senior engineering talent for his Columbus firm at half the cost it would be in San Francisco or New York. “There is no cornered market on brilliant, intellectual minds,” he adds.

During his bus tours to bring attention to underserved cities for VC investment, Case has found that many communities are risk averse and skeptical. “One of the great things about Silicon Valley is the fearlessness,” he says. “When you hear a startup pitch, do you focus on what the possibilities are or what could go wrong? In Silicon Valley, it’s the possibilities.”

Case sees a unique opportunity for the more than 200 cities who submitted bids last year for a second headquarters for tech behemoth Amazon. “Take half the energy and half the capital you are willing to devote to Amazon and put it towards your startup sector—that will bear far greater fruit over the next 10 to 20 years,” says Case. “Applying the effort with cross-sector collaboration across the city and refocusing it on the startup side of things gives the opportunity to create the next Amazon.”

Remember, the newly-crowned $1 trillion Amazon was a startup once too.

1. Columbus, Ohio

  • Major VC Deals: Sollis Therapeutics, Root Insurance, 2Checkout

  • 3-year Deal Count: 141

  • Cost of Doing Business: 2% below the national average

Former Sequoia Capital partners Chris Olsen and Mark Kvamme left Silicon Valley in 2012 to establish Drive Capital, which now ranks as the biggest VC firm in Columbus. The number of funds per capita in Columbus rank among the highest of any city.

2. St. Louis

  • Major VC Deals: Essence Group Holdings, Varsity Tutors, Benson Hill Biosystems,

  • 3-year Deal Count: 146

  • Cost of Doing Business: 8% below the national average

The value of venture capital investments in the past three years in St. Louis is up 90% compared to the prior three years, per PitchBook. Cloud-based software firm Essence Group Holdings has conducted three raises worth a combined $241 million since 2011.

3. Atlanta

  • Major VC Deals: Kabbage, Rubicon Global, AirWatch,

  • 3-year Deal Count: 413

  • Cost of Doing Business: 7% below the national average

Atlanta's rate of entrepreneurship ranks among the highest in the U.S., according to the Kauffman Foundation. Atlanta startups had a record 2017 with $1.2 billion in VC investments.

4. Denver

  • Major VC Deals: Welltok, Reven Pharmaceuticals, Accera

  • 3-year Deal Count: 492

  • Cost of Doing Business: 4% above the national average

In addition to its mountains and sun, Denver offers a burgeoning startup community in diverse economy. Metro Denver has 150,000 college students fueling a highly educated workforce and serving as a pipeline of labor for startups. “Denver is on the rise because they are keeping homegrown talent and becoming a magnet from other places for people who want to live there, partly for lifestyle reasons but also for opportunity reasons,” says Case.

5. Baltimore

  • Major VC Deals: Sonatype, SpringWorks Therapeutics, Tenable

  • 3-year Deal Count: 220

  • Cost of Doing Business: 11% above the national average

The proximity to Washington, D.C. helps Baltimore’s startup community. Johns Hopkins Technology Ventures serves as the commercial arm of the school’s researchers and investors. JHTV had 164 patents last year, seventh most among schools.

6. Cincinnati

  • Major VC Deals: Everything But The House, Aerpio Pharmaceuticals, Assurex Health

  • 3-year Deal Count: 133

  • Cost of Doing Business: 7% below the national average

There was only $15 million in VC funding for Cincinnati startups in 2010. This year’s final tally will soar past $100 million. The Institute for Entrepreneurship at Miami University, located just outside of Cincinnati, is one of the top-rated programs in the U.S. for real-world learning for startups.

7. Portland, Oregon

  • Major VC Deals: Jama Software, Vacasa, Puppet

  • 3-year Deal Count: 261

  • Cost of Doing Business: Equal to the national average

Portland-based product development software firm Jama Software raised $200 million this year led by Insight Venture Partners with participation from Madrona Venture Group.

8. Philadelphia

  • Major VC Deals: Tmunity, Harmony Biosciences, Recovery Centers of America

  • 3-year Deal Count: 548

  • Cost of Doing Business: 2% above the national average

Philadelphia offers convenient access to the East Coast hubs of Boston, New York and Washington, plus more affordable business costs. It is home to more than 100 degree-granting institutions and has the second largest university population in the U.S

9. Minneapolis-St. Paul

  • Major VC Deals: Bright Health, CVRx, Relievant Medsystems

  • 3-year Deal Count: 284

  • Cost of Doing Business: 2% above the national average

The annual Twin Cities Startup Week allows entrepreneurs to reach investors, customers and future employees. Innovation is strong on food and agriculture with food giants Cargill, General Mills, Hormel and Land O’Lakes all based in the area.

10. Charlotte, North Carolina

  • Major VC Deals: AvidXchange, Edison Nation, Passport

  • 3-year Deal Count: 89

  • Cost of Doing Business: 12% below the national average

Business costs in the Queen City rank among the lowest of any major U.S. city. VC investment of $881 million in Charlotte companies between 2015 and 2017 was 590% higher than in the prior three years, fueled in large part by two massive raises for payment processing platform AvidXchange.

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