Entrepreneurship ecosystems : California still on top, Massachusetts beats NYC for second place !

President Obama insisted, during his State of the Union address, on the fundamental importance of entrepreneurship for the US economy, and he especially called upon the different states to do their best to create attractive environments for entrepreneurs, referred today as “entrepreneurial ecosystems”. Well, when one looks at the data revealing how each state is doing in its attempt to attract entrepreneurs, the gap between the best and the worse is quite striking !

California still on top !

The first spot is undoubtedly occupied by California, and 2011 statistics confirm the domination more than ever.
Home to a great ecosystem composed of great universities (Stanford, Berkeley, UCLA, etc.), big Venture Capital funds, great start-ups and innovative companies, the region is also inhabited by a very powerful entrepreneurial spirit, never equaled anywhere else in the world. The results ? California attracted more than 50 % of the venture capital money in 2011, for a total of more than $15 billion, and was home of some of the biggest IPOs of the year (Linkedin & Zynga…) and Facebook is expected to beat the record in a couple of months. Also, California keeps attracting the most innovative companies, that sees the region as a “start-up heaven”.

Massachusetts & NYC battle for second place.

And what about others ? The traditional second of this “entrepreneurial race” is Massachusetts, another great ecosystem that gather the same ingredients than California, but at a more modest scale. Benefiting from the bright minds of Harvard and MIT and of the power of its financial scene, the Massachusetts is a giant hub for biotechnology and healthcare, and attracts a lot of financing, whether private ($3.5 billions from VCs) or public (Massachusetts obtained one of the biggest share of public funding in science these last years).

But its title is seriously contested by the fast growing New York State, and especially New York City, that wants to become famous for entrepreneurship the way it already is for arts, fashion and finance ! With more than 100 academical institutions, a fire power in finance and the support of its mayor, NYC keeps launching initiatives aimed at supporting entrepreneurs, especially in the IT sector. As an example, a new cross-disciplinary scientific campus worth $100 millions is being built and a new biotechnology initiative is on the way. In a couple of years, NYC has become a very trendy place for entrepreneurs willing to build the next big company !

Can that ambition threaten Massachusetts ? Undoubtedly, especially since the 3rd trimester of 2011, when NYC pulled in $831 millions of VC money in start-ups, toping Massachusetts ($710 millions) for the first time ! Michael Bloomberg, mayor of NYC, boasted that his city was on track to outperform Mass. for good. And when Facebook decided to open its East Coast office in NYC instead of Boston, that was another big slap in the face of Massachusetts ! Fortunately for the latter, things came “back to where they where” in the end of 2011, when Mass outperformed NYC again, finishing the year with $3.6 billions of VC money, against $1.6 billion for its rival.

Massachusetts, a more balanced approach.. for now

So who’s got the best asset to secure the second spot ? We would tend to place a bet on Massachusetts, who can pride itself on having a broader distribution of startups, ranging from biotech, its traditional strength, to cleantech and IT (10% and 23% of investments), and also an easier access to start-up capital than NYC. But to remain competitive Mass will have to develop more its internet and IT sectors, that are focusing attention and money right now all over the United States. On the other side, NYC relies too much on the IT sector, that represent almost 2/3 of the money attracted for start-ups, and has to concentrate its efforts on building a more balanced environment, to facilitate the development of other industries. It is key to insure its development. Also, and even if that can be seen as a paradox, NYC has to expand the quantity of money available for start-ups, as Wall Street is not made to invest in small companies.

Collaboration, instead of competition ?

Another opportunity for Massachusetts and NYC would be to collaborate more in order to create an “East Coast ecosystem” that would definitely gather amazing assets to attract start-ups. The NYC-Boston corridor represents a great ecosystem, that would be recognized as one of the world’s best, if only the two regions collaborated and promoted it in such a way internationally. Calfornia, as an example, is perceived as a whole while being way bigger than the NYC-Boston corridor, and it encompasses several innovative clusters such as the Silicon Valley, San Diego or San Francisco. A good idea to explore for the Massachusetts and NYC rivals ?

Read our full report (in French)