The US tech scene is becoming decentralized — the time is ripe for new startup cities

It’s no big secret that the US tech hubs of yore – San Francisco, New York, and Silicon Valley – have been facing increasingly stiff competition over the past decade when it comes to attracting the hottest new tech startups and scaleups.

While the relative contribution of those cities in terms of newly created unicorn companies peaked in 2014, the rest of the US steadily accumulated more VC funding, leading to faster growth of new tech hotspots. All over the continent and the globe, new tech hubs are emerging, each with their own specializations, ecosystems, and unique features for attracting fledgling tech companies.

And the pandemic has only escalated this tech ‘decentralization’ further with the prospect of indefinite work-from-home-life allowing tech workers to get away from rising major city prices. This is creating new momentum for cities that want to gain a tech advantage.

We decided to take a deeper look into what’s driving the decentralization of tech in the US and how blossoming startup communities can benefit.

Location-independent capital

“From a data perspective, more capital is coming in,” Darren Stauffer, Head of Government Sales at Dealroom, tells TNW over Zoom. At Dealroom, Stauffer helps cities and regions of all sizes understand their tech ecosystem better, based on data the platform collects about, “startups, innovation, high-growth companies, ecosystems, and investment strategies,” so he’s aptly suited to give us some straight up answers.

Investors aren’t necessarily investing in the major tech hubs, they’re investing everywhere.

“Just look at Hopin, which was built completely remotely and became the fastest billion dollar company ever. For the longest time, they didn’t have a physical office,” he tells us, illustrating that investors are, “seeing opportunities to expand into new markets, like finding new investment opportunities in Europe, in smaller US cities, and in emerging markets. And that’s what we can see from the data.”

With investment in innovative companies reaching a record €246 billion in the first half of 2021 — a year over year increase of 230% — there is a lot of money available. Money that’s finding its way into completely new territories, and compounding the growth of burgeoning startup ecosystems.

Stauffer tells us that the main factor driving investors to seek opportunities farther from home is access to data.

You don’t have to go to an office just to look into the background of a company, and you don’t have to be in the same city to know what they’re doing.

And that’s not all that the data is showing. A 2021 report from Dealroom and tech publication Sifted pulled some interesting stats from the database that all point towards rapid geographical spread of innovation.

Some interesting facts from the report: Charlotte, NC, is the fastest growing US tech hub. Meanwhile Utah is the fastest growing state when it comes to unicorn creation, led by Salt Lake City, which saw a 16x growth in unicorns created. Miami has seen a 15% increase in the number of tech workers moving to the city, and Pittsburgh has become the de facto capital for autonomous technology.

Startups equal job growth

The decentralization of capital is also giving founders more flexibility in deciding where they want to set up shop. Non-astronomical costs of living, access to previously untapped workforces, a more favorable tax climate, and higher acceptance of remote work are just a few reasons some tech companies are choosing to settle off the beaten path.

Local governments, both on the state and municipal level, are actively courting tech workers and companies to reap the benefits that a growing startup ecosystem can bring. Stauffer explained:

Startups create more new net jobs than any other traditional industry.

So it makes sense for cities of all sizes to invest in creating a welcoming environment for tech companies, and to understand what the community needs. And this goes for cities of all sizes.

“We always hear in the news: ‘this company raised a ton of money and they’re gonna hire 500 people.’ But what about the companies that hire five people? When there’s 25 of them, that adds up to 125 well-paying jobs that support the local economy,” Stauffer says. “Cities just have to start somewhere.”

And as many startup ecosystems have proven already, one success story can lead to many others. TNW recently spoke to Nicolaj Christensen of Digital Hub Denmark, who told us that what really got the Danish tech ecosystem going, was the capital and experience of local founders who made significant exits and reinvested that capital and experience into the local ecosystem.

Stauffer agrees with this sentiment.

That’s why it’s so important for cities and governments to invest in startups, even if they feel they’re late to the game. They should all realize that startups will create jobs. And not every startup will be an Uber or an Airbnb, which is okay. But if you don’t invest in it, you’ll never get the opportunity.

Find a niche

The emerging startup hubs that have been most successful in attracting tech talent and founders are those which have focused on their unique offering. And this doesn’t necessarily have to be tech related, it could be anything from climate to local taxes, access to local universities and communities, or anything that makes the location different.

Take the city of Las Vegas, which has been working with Dealroom to better understand its startup ecosystem and grow it ambitiously — which seems to be working. “The city of Las Vegas has taken an active role in diversifying the local economy — and encouraging the growth of startups and venture capital helps do that,” Jeff Saling, founder of StartupNV, Nevada’s state-wide startup incubator, tells TNW.

Interestingly, the growth of Las Vegas as a tech hub seems to be independent from specializing or fostering a specific vertical. “We’ve made no effort to screen out particular technologies or industry verticals. Instead we favor ‘scalable’ startups without regard for the industry vertical,” Saling writes.

The attractiveness then seems to be driven by other factors. Saling said,

Over time, we’re seeing citizens and visitors take interest in things outside of our strong suits (entertainment, great food, gaming, hospitality, tourism) – and that’s exciting. New arrivals are seeking the ‘livability’ of Las Vegas – and when you add in the things we’re famous for, it can be mind blowing.

Another good example of a city making use of its unique features is Atlanta. The city has put in huge efforts to create a tech ecosystem that, “prioritizes access to capital for black and brown communities.” This investment has paid off. According to the Sifted report, Atlanta stands to produce over 29 unicorns in the upcoming years, with a percentage of African-American tech workers that exceed the national average by more than 10x.

For too long now major cities have been the sole beneficiaries of the tech boom and the drivers of innovation. But the decentralization of capital, tech workers, and startups are providing new opportunities to spur economic growth across the country. It’s uncertain what the long term impact of decentralization in the US could be (Greater resistance to economic disruptors like Covid? More equal wealth distribution? An increased rate of innovation?) But what is clear is that those cities ready to take advantage of this momentum will come out on top.