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How to make a tech hotbed

By Jeremy Hintz / September 2, 2014


How to make a tech hotbed

If you pay attention to tech news, you’ve probably noticed that most of it comes out of a few places. Silicon Valley, Seattle, and Austin are far and away the big three when it comes to tech innovation. But what other cities are cranking out new and exciting ideas? Let’s take a look at the factors that come into play when creating a tech hotbead.

Economics 101

When looking to start a company, it’s all about land, labor, and capital. These certainly hold true for tech companies, although you could argue that for many startups “land” can be interchanged with digital equivalents like domains, servers, or online promotion. Labor and capital are extremely important to startups, however, and that plays a big role in where companies take off.

One of the main reasons Silicon Valley is so startup-friendly is the cluster of high-powered universities nearby. Between Stanford, Cal-Berkeley, and Caltech, there is enough talent to keep Google, Apple, and Facebook rolling while still leaving plenty for the no-names. The same is true of Seattle with UW, Austin with The University of Texas, and Boston with MIT and Harvard. But even labor pales in comparison to the importance of capital, or in a start-up’s case, the availability of capital.

The ability for entrepreneurs to secure funding is the number one most important factor in which area startups choose to plant their roots. With established avenues toward seed funding, the headaches are minimized. Beyond strictly funding, it is also a distinct advantage to have the folks giving you money as mentors. Silicon Valley, Seattle, and Austin all have a history of entrepreneurial success, so it is much easier to find older, wiser VCs who can not only dish the dough, but also offer some good advice.

So given what we know about the things that contributed to the success of some of the places we think of as traditional tech powerhouses, let’s examine some of the other cities that share valuable traits that created a boom in their tech scenes recently.

Death, Taxes, and Progress in Texas

Beyond land, labor, and capital, Economics 101 also tells us about the inevitability of taxes. Texas governor, Rick Perry, has made headlines for his trips to California, publicly wooing businesses big and small to the lone star state. Due to the lack of a state corporate income tax and the relatively low cost of living, Texas is indeed an attractive place to start a company. It’s no surprise that not only Austin, but also Dallas, Houston, Plano/Richardson, and San Antonio/New Braunfels are all favorites on the various “Tech-friendly Cities” lists put about by sites and magazines.

Toyota has been manufacturing trucks in San Antonio since 2006, and with their headquarters moving to Plano, Toyota is pumping a lot of cash into Texas. Along with that cash comes a lot of tech innovation, both from a manufacturing and engineering standpoint, as well as from Toyota’s world-famous digital marketing aptitude. Toyota will be far from alone in Plano, joining Texas Instruments, HP, Intuit, and others, not to mention several other players in the Metroplex at large.

Reduced Circumstances in New York

Ok, so Texas has some major financial benefits to offer tech companies, but what do other cities bring to the table? One small town on the east coast called New York has a thriving tech and start-up scene. Headlined by names like Foursquare, Genius, and Buzzfeed, the New York tech scene has seen a nice uptick in recent years. In fact, the past ten years have seen a 13% increase in venture capital distributed in the Big Apple, over twice the growth seen in the valley.

But why? Unlike the big-time engineering presences that spurred growth in the places we’ve mentioned before, New York is not world-famous for its history of world-shifting tech innovations. What it is famous for, however, is having a lot of intelligent people working for big investment banks, law firms, and consulting firms. Many believe that the economic downturn actually helped the New York tech scene because a lot of very smart people lost their jobs and found themselves with very little to lose. That, combined with the fact that they were likely disillusioned with the status quo of corporate life and yet comfortable with working obscenely late hours, made them a perfect fit to plug into our labor requirement.

For capital, while the crash certainly hurt the amount of available capital, there were still plenty of rich people in New York, and it’s a safe assumption that they were looking for a less traditional spot to plant their money in a time when the stock market looked less and less safe. Any entrepreneur knows that being in the right place at the right time can play a huge role in the success of an entrepreneurial venture, and that also applies to an entrepreneurial culture. New York benefitted from a combination of circumstances, and doesn’t look to be slowing down anytime soon.

Government Support in Baltimore

For a look at how local government can grow its tech scene, one might check out the Baltimore area as a possible case study. In 2012, Maryland’s governor, Martin O’Malley, announced an $84 million investment into Maryland’s “innovation economy,” which would provide funds to young companies. The funds were raised using an online auction of premium tax credits. Baltimore and Maryland as a whole are an interesting case because at first glance, it is not obvious what would make them a potential hotbed for tech innovation.

While there are several good universities nearby, most focus on social sciences due to the proximity of Washington DC. John Hopkins is an obvious focal point for talent, but it isn’t strictly the biotech sector that is driving the area’s growth. Similarly, while there are existing large tech companies nearby, not near at the scale of cities that Baltimore has surpassed in tech prowess. Maryland is a good place to start a business, but its 8.25% corporate income tax isn’t a defining factor the way it is for Texas.

Upon examination, it becomes clear that the government’s investment has profound effects in the way that capital flows downward. Maryland scored high in human capital investment in a recent Milken Institute study that ranked Maryland #2 in technology and science assets. The fact that the government has invested in these companies allows them to “pay it forward” to their employees which allows them to attract more and more top talent.

As a whole, America is running on a high-tech economy. And while there are pockets that stand out as world leaders, there are smaller pockets all around the country in which tech is strong and growing quickly. To find areas with a strong tech and startup atmosphere, one need look no further than the basics of economics. Access to talented labor and capital pay a particularly important role in tech growth, and cities that have those assets going for them have high potential to create a powerful tech hotbead.

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