Venture capital hot spots

Boulder edged out Salt Lake City in a recent ranking of the top U.S. second-tier cities for venture capital investment.

The two cities took the top spots for the number of VC deals completed from 2003 through mid 2005. The rankings were part of a Federal Reserve Bank of Boston study (pdf copy here) of how venture capital investments are distributed outside of the traditional VC hot spots of Silicon Valley, Boston, New York City, Texas, and Los Angeles.

Highest-performing
U.S. Secondary Cities

1 Boulder, CO
2 Salt Lake City, UT
3 Westborough, MA
4 Ann Arbor, MI
5 Norwalk, CT
6 Providence, RI
7 Southborough, MA
8 Stamford, CT
9 Melbourne, FL
10 New Haven, CT

Source: Initiative for a Competitive
Inner City. Cities ranked by number
of private equity deals per city.

Actual deal numbers were not disclosed, so there’s no way to tell how much of a lead the two cities had over other locales.

The rankings were in an article that focused mainly on the economic importance of venture capital, and how New England secondary cities can attract more of it.

The authors — Prabal Chakrabarti and Carole Carlson — identified six factors that help top secondary cities attract more venture capital than their peers:

  • Clusters and Networks. “Geographic concentrations of interconnected companies, specialized suppliers and service providers” in particular fields were deemed the most valuable factor, along with personal networks and professional societies.
  • Investor Presence. Also key was having an already established investor presence, including “angel” investors.
  • Historical Returns. Not surprisingly, the ability to attract reason-
    able returns on investments was important, while below-average returns were found (duh!) to deter investment.
  • Intellectual Capital and Technology Transfer. There was a strong correlation between deal flow and the presence of national research universities.
  • Community Attractiveness. Quality of life also was strongly correlated with the ability to attract venture capital.
  • Accessibility. Direct transportation links to major funding centers was important in helping VCs find and vet deals, as well as serve as company board members and mentors.

The good news for Boulder is that it appears to have plenty of the “secret sauce” needed to attract serious venture capital players.

The bad news? All secondary cities combined received just 13% of the deals and 20% of total investment dollars, despite having 51% of the U.S. population, 49% of the number of business establishments, and 38 percent of the U.S. payroll.

So don’t uncork the champagne yet. There’s plenty of work still to do if Boulder — and the rest of Colorado — hope to break into the ranks of the country’s truly top-tier VC capitals.

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