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Startups and Venture Capital Are Going Urban

As investments shift from suburbs to cities, venture capital is moving to dense urban areas that are more walkable and served by transit.

The iconic image of high-tech industry—as viewers of the HBO series Silicon Valley are well aware—is a suburban office park off a highway interchange. For decades, these so-called suburban “nerdistans” were the preferred location for high-tech startups and their workers. But the past few years have seen a striking urban shift in high-tech startups and venture-capital investment. As my latest research has shown, the United States is home to two billion-dollar venture-capital neighborhoods—both of them in downtown San Francisco.

Today, I drill down further into this urban shift, summarizing the key findings of a new analysis I co-authored with my Martin Prosperity Institute (MPI) colleague Karen King. Our study uses detailed data from Thomson Reuters to identify venture-capital investments that flow to dense, walkable, and transit-friendly neighborhoods based on ZIP codes. We identify urban neighborhoods as those with more than 2,200 households per square mile, a thresholdoriginally documented by economist Jed Kolko. This is a big advance over previous research, which has been hampered by highly aggregated data available only at the regional or metro level.

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