Top cities for technology start-ups

Top cities for technology start-ups

August 23, 2012

LOS ANGELES – It's a given that the San Francisco area, including Silicon Valley, is the technology capital of the world. Seven of the top 10 most-visited websites are based there, including Google, Yahoo, Facebook and Ask. But how does the rest of the USA fare for tech start-ups?

USA TODAY asked the National Venture Capital Association to rank the top 10 cities for start-ups, based on dollars invested in young tech companies in 2011. Brainiac-rich Boston ranked No. 2, followed by capital-rich New York City, entertainment-meets-tech Los Angeles and business-to-business Washington, D.C.

High rents in San Francisco and New York are making other parts of the country, where living expenses are lower, more attractive. Some of the hottest names in tech are building facilities elsewhere — including software maker Adobe in the Salt Lake City area, chipmaker Intel in Portland, Ore., and Apple in Austin. These areas are seeing strong job growth because of the "available talent and relatively low costs" of real estate, says Colin Yasukochi, director of market research for real estate services company CBRE.

San Francisco: The city and its environs are home to Facebook, Google, Yahoo, Zynga, Apple, Pinterest — some of the most visible tech firms in the world. Students graduate from Stanford University in Palo Alto and the University of California-Berkeley and go straight to work at one of the local companies, or start their own. For example, Stanford student Akshay Kothari created the Pulse news reader app for the Apple iPad while in college and raised $9 million for his company. Stanford grad Kevin Systrom worked at Google before branching out with his photo app, Instagram, sold to Facebook this year for a cool $1 billion.

Boston: Harvard and MIT students get scooped up to work for firms in Boston and Cambridge, but there's more. "We have over 100 colleges here and five of the top teaching hospitals," says Douglas Cole, a partner at Flagship Ventures. The biggest local commercial websites are travel-related TripAdvisor and Kayak, which Spark Capital partner Bijan Sabet notes have a combined market cap of more than $6 billion. Start-ups include online backup service Carbonite and ByteLight, an indoor GPS service. "The local angel investing market has never been stronger," and the venture investing market is aggressive, says Sabet, an early investor in Twitter.

New York: Popular blogging site Tumblr, check-in favorite Foursquare, appmaker GateGuru (airport info) and Videolicious (automatic video editing) are Big Apple hits. Rents are astronomical, but access to capital — hello, Wall Street— is easy. Just ask the Fab.com design site, barely a year old, which raised $140 million. Or Mayor Michael Bloomberg, who recently announced a $22 million fund for local tech start-ups. "We see a lot of companies start in New York with a real instinct for design," says Matt Murphy, a partner at Kleiner Perkins Caufield & Byers, a venture firm in San Francisco.

Los Angeles: For years, the L.A. area — which extends down to Orange County— was about entertainment, while north was for tech. But now the areas are intersecting, as more firms invade the sunny city. Demand Media, parent company to eHow, is in the area, as is heavy-trafficked Buzzmedia, Break.com and Citysearch. Google has a new outpost in Venice Beach, also home to e-card app JibJab, e-commerce's ShoeDazzle and Viddy. In less than a year, Viddy has amassed 35 million users and $38 million in capital.

Washington, D.C.: The nation's capital gave birth to early Internet pioneer AOL and now houses shopping powerhouse LivingSocial and start-ups such as Popvox, which helps citizens directly lobby elected officials, and TroopSwap, a daily-deal site for the military. The area attracts mostly enterprise start-ups, companies selling to others, as well as political and military sites, says Zvi Band, who runs the Proudly Made in DC website directory of local start-ups. "Every major organization and non-profit has a presence here, so it's really attractive," he says.

San Diego: Two hours south of Los Angeles, the San Diego area is home to chip manufacturer Qualcomm, online radio's Slacker and Sorenson Media, which provides software for online video playback. Also there are small start-ups MOGL, a customer loyalty program provider for local businesses, and UME, which connects phones with contact info. The large military bases and health care presence (dominated by Scripps Health), along with the University of California and other schools, produce "a lot of engineers," says Yasukochi.

Chicago: The tech scene is dominated by Motorola Mobility, which makes wireless devices and was acquired by Google in May for $12.5 billion. It's also home to social-shopping powerhouse Groupon and online travel agent Orbitz. In Chicago, which has dubbed itself "Silicon City," a start-up is formed every 48 hours, according to the Built in Chicago website. Among them: GrubHub, for online restaurant ordering, and Peapod, for home delivery of groceries.

Austin: The northern Texas city hosts the start-up fest South by Southwest every year and is home to computer giant Dell, photo software firm Photodex, travel sites BedandBreakfast.com and VacationRentals.com. "First-class ideas are being produced there," says Douglas Cole of Flagship Ventures, who says the lower costs of living in the Texas capital city attract great engineering talent.

Boulder/Denver: The Mile High City and nearby Boulder have been start-up magnets for years, thanks to Internet household names such as Mapquest (acquired by AOL in 2000) and photo-sharing site Photobucket, the second-most-visited online photo site. Boulder-based incubator TechStars takes on 50 companies a year and has an $80 million fund for start-ups, while Foundry Group invests up to $225 million. "We're not Silicon Valley and never will be," says TechStars CEO David Cohen. "We're only 100,000 people, but the activity per capita is enormous."

Seattle: The birthplace of Microsoft and Amazon and home to founders Bill Gates and Jeff Bezos gets locals looking "at those incredible success stories and saying 'I can do that,' " says Greg Gottesman, managing director of Madrona Venture Group. Also here: T-Mobile, online travel agent Expedia and real estate services site Zillow. Small start-ups include humor site Cheezburger and fan website BuddyTV. Local wireless game company PopCap was sold to Electronic Arts in 2011 for $1.3 billion. The University of Washington produces engineering grads.