Beyond Silicon Valley: Why Opportunity Is Moving Outside The Traditional Innovation Hubs

By Mark Flickinger, Forbes Contributor

 

There has been a longstanding belief that for startups to succeed, they must be located in one of the country’s traditional Innovation Hubs. For technology, the primary hub is Silicon Valley and the San Francisco Bay Area. Startup founders have flocked to this region for decades due to the success of other companies located there, the wealth of software development talent in the area, and the presence of large venture capital firms needed to fund growth.

But even as Silicon Valley has been a Mecca for technology startups, it has its drawbacks, including a high cost of living, overcrowding, and regular environmental crises such as wildfires. With an expanding number of options for building businesses elsewhere, entrepreneurs are increasingly wondering whether Silicon Valley and other high-cost Innovation Hubs like New York City are still the only places to be.

Rising Centers Of Innovation

Over the last several years, in fact, a growing number of startups are being founded in areas outside of the traditional hubs. This trend is supported by technology advancements like cloud computing, which has enabled software companies in particular to rely on talent located anywhere. Software products can now be worked on collaboratively “in the cloud” without programmers being in the same room or even the same part of the country. This wasn’t possible just a few years ago.

As young tech companies are setting up shop in emerging centers outside of the Valley, the talent pool is migrating as well, aware of newfound career opportunities in places with a lower cost of living and a better quality of life. The work-from-home paradigm created by the pandemic has accelerated this flight as more tech professionals become acquainted with telecommuting and more businesses accept it as an efficient, effective, and in some ways necessary, way to operate.

Due to this migration, ecosystems are developing that are specific to certain industry segments, such as the transportation and supply chain solutions that are currently coming out of Chattanooga, Tennessee. Following the adage “success begets success,” these micro ecosystems attract more talent and more entrepreneurs focused on specific markets. A Google search on “top tech cities” will locate numerous places outside the traditional hubs where innovation is occurring, from cities already known for a broad range of tech successes like Atlanta and Austin to perhaps less expected locales such as Denver, St. Louis, and Columbus, Ohio. This momentum should continue in the years to come.

Private-Market Investment Boom

As more of these tech centers develop in cities around the country, the availability of capital outside the traditional Innovation Hubs has grown as well. In the past, it was perceived as a disadvantage for a tech company to be based outside of those areas because it was more difficult to secure investment capital. This was primarily because the large funds were located inside the hubs and had plenty of opportunities right on their doorsteps that warranted investment. They didn’t have to look much farther than that for high-quality deals.

While Silicon Valley and the other hubs are still the epicenter in terms of aggregate capital, with large, well-established funds still headquartered there, the notion of startups having to also be there to get funding has changed.

Why? A big reason for this is the influx of capital in the private markets as more investors recognize it as an engine for growth. Venture funds are locating themselves in other areas of the country where innovation is happening. Many of the new tech centers are also home to investors who are funding promising companies locally.

With more collective capital spread around the country, entrepreneurs are the beneficiaries. More money chasing promising companies lessens the advantages that location previously garnered.

My firm’s The State of StartupsSM in the Southeast report revealed that the increase in the supply of capital in the private markets is supporting elevated valuations and larger funding rounds. While the report focuses on the Southeast, the probability is that the same trend is occurring elsewhere.

Success Lives Here

In addition to having a good idea, there are elements that technology startups need in order to be successful no matter their geographic location. Chief among these are access to talent, access to funding, and a supportive business ecosystem that includes incubators and accelerators to help refine products and strategies.

While Silicon Valley and the San Francisco Bay Area will always be a hotbed for innovation, the reality is that rising tech centers across the country are providing these same elements along with a better cost of doing business and better quality of life.

These new centers are attracting promising entrepreneurs that have realized they are no longer tethered to one or two locations in the country to build their successful business.

Note: The State of StartupsSM in the Southeast is an annual report published by Atlanta-based venture firm BIP Capital. 

This article was originally published in Forbes and was reprinted with permission.

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