Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 377: Rise of the Startup City: The Changing Geography of the Venture Capital Financed Innovation

Richard Florida and Charlotta Mellander ()
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Richard Florida: University of Toronto’s Rotman School of Management and Global Research Professor at NYU
Charlotta Mellander: Prosperity Institute of Scandinavia, Jönköping International Business School (JIBS), & Centre of Excellence for Science and Innovation Studies (CESIS), Sweden.

Abstract: The prevailing geographic model for high-technology industrial organization has been the “nerdistan,” a sprawling, car-oriented suburb organized around office parks, of which Silicon Valley is the prototypical example. This seems to contradict a basic insight of urban theory, which associates dense urban centers with higher levels of innovation, entrepreneurship and creativity. Our research examines the geography of recent venture capital finance startups in the United States across metros and within a subset of them by neighborhood and finds compelling evidence that the model is changing. Venture capital investments are clustering in larger, denser urban centers with high levels of human capital, like San Francisco and Lower Manhattan, as well as in walkable suburbs. We suggest that the suburban model might have been an historical aberration, and that innovation, creativity, and entrepreneurship are realigning in the same urban centers that traditionally fostered them.

Keywords: Venture capital; investments; start-ups; cities; suburbs

JEL-codes: F65; G20; O31; R00

46 pages, October 7, 2014

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