No one in the United States ever asks what city is going to be the next New York. Ditto for Chicago and San Francisco, which have vibrant finance communities built around commodities exchanges and technology.
So why do people constantly ask where the next Silicon Valley will be based?
The Bay Area is expensive, it’s crowded, and there is an enormous wealth disparity between those that have struck it big and those that haven’t. But it’s also a unique place. Those of us who have lived here and in other aspiring tech hubs can tell that story in a compelling fashion.
Yet still the question persists: Where will the next Silicon Valley be? To help answer this question, one of our ventures decided to turn to the data.
What Correlates to a Technology Hub
Unlike in the 1990s, we have decades worth of data to tell us what healthy software ecosystems look like today. IT is a dominant sector in the US economy, with hundreds of success stories year in and year out. So diving into the data on what correlates to areas of tech activity is much easier.
That’s what our team at Atlas did; looking through thousands of metrics about business environment, demographics, population movement, and household psychographics to determine what types of environments fostered tech communities.
The data included information about acquisitions, IPOs, and tech activity from all sorts of areas — and took into account cities of all sizes. The team looked at per capita data and made sure to account for and analyze scenes like Boulder, Boston, and Austin (all small but vibrant ecosystems).
When the numbers were done being crunched, we saw a number of metrics that were tightly correlated to the creation of new IT companies. Specifically:
- Private Sector Activity
- Higher Education
- Population Diversity
- Bikeable / Walkable Cities
- High Incomes
- Startup History
Any one of these metrics makes sense with a little deeper thought. Private sector activity (even outside of technology) is a great indicator of access to customers and access to exits. Michael Porter at the Harvard Business School has spent decades explaining why clusters of economic activity reduce the transaction costs to growing new businesses. Naturally, with more activity, we should see more growth of the technology companies being built.
Higher education yields research and a workforce that’s capable of building new businesses in new areas. Population diversity is a great indicator of a vibrant immigrant community; a critical piece of any hub that’s pursuing innovation in highly specialized areas.
Bikeable, walkable cities are great places to live. No one wants to spend one quarter of their life stuck in gridlock — especially not highly coveted tech employees. Incomes tie back to all sorts of factors: bargaining power of labor, presence of profits in an ecosystem, education and experience levels, etc. And a history of startup exits is the indicator of a talent diaspora, a presence of liquid investment capital, and the ability to sustain future exits.
How Different Cities Stack Up
The question at the heart of the analysis was, “Where is the next Silicon Valley?” Drumroll please…
The answer. Nowhere. As suspected, there is no city that is remotely close to the Bay Area. The density of tech employees, potential buyers, amount of VC funding, relevant employees, and so many more indicators are immensely strong across San Francisco, San Jose, and some of the smaller incorporated cities in the Bay Area. It’s just a different ecosystem.
For context: LA is 6.79x more similar to Minneapolis against the indicators we identified than it is to San Francisco, giving you a sense of how different cities are to Silicon Valley.
But this question was wrong to begin with. It was the wrong question every time a journalist lets it hit print. The question isn’t where is the next Silicon Valley (just like it’s not where is the next NYC). The question should be where can we build vibrant tech ecosystem in their own right.
While the Bay Area is unique, we did see the indicators of potential success in a number of different cities. In each of these cities the flavor of what makes them viable is different — and that means that city officials, policymakers, and companies need to ensure they’re treated differently. Nothing will turn them into Silicon Valley, so folks should embrace what makes them different instead.
The closest areas:
- Seattle, WA — Home to the hyperscale cloud companies
- New York, NY — Home to finance and commerce
- Washington, DC — Home to security and govtech
- Los Angeles, CA — Home to media
- Boston, MA — Home to robotics and biotech
While I’d bet dollars to donuts that none of these cities ever surpasses San Francisco as the hub for US IT innovation, each offers something special. If we stop asking what will be the next Silicon Valley and start asking what will make LA tech reach its pinnacle, then I think those communities have a shot at building something great.
Bonus: If you were going to try in…
Since we had extremely granular data, we decided to try to estimate which areas might be able to sustain vibrant tech neighborhoods at a city block level of granularity. If you’re interested… take a look.
New York, NY
Maxwell Wessel is general manager of SAP.iO.