Best and Worst States for Tech Startups
The United States tech industry is worth $1.9 trillion, the most of any nation according to the International Trade Administration. Silicon Valley companies such as Apple, Alphabet, Amazon and Meta have led the world for decades and 2023 saw the explosion of generative AI programs such as ChatGPT and Google’s Bard. The AI market is projected to reach $1.3 trillion over the next 10 years, up from $40 billion in 2022.
However, it is not only Big Tech that will benefit. The emergence of no-code low-code AI tools is democratizing technology and making it possible for small business owners across the country to automate, reduce costs and improve efficiencies in all areas of their business. In fact, Gartner projects that 80% of tech products such as mobile apps will be built by workers who aren’t tech professionals by 2024.
The tech industry also saw mass layoffs this year at Meta, Google and Amazon. Staffing experts say that job market and technology shifts could prompt tech workers to search for work at small and medium-sized companies. Coupled with the rise of remote work, and corporate relocation, these changes mean that old assumptions about the best places for tech firms – like Silicon Valley and Seattle – may no longer apply.
Appy Pie conducted a study to rank the best and worst states for tech companies using the most recent federal data across six metrics:
- Startup survival rates
- Venture capital growth
- Patent innovation
- Concentration of tech firms
- Concentration of tech workers
- Public funding
Several Key Findings
- Massachusetts is the No. 1 Best State: Due to its high concentration of tech workers and firms (9.5% and 6.7%), as well as high federal funding for tech innovation (equivalent to $1,223 per capita). Runner-up California outranked Massachusetts only two metrics: patents per 100,000 (127.8) and startup survival rate (55.2%). Maryland, Virginia and Colorado also landed among the top five.
- Mississippi Ranked Last: The state saw no venture capital growth in recent years, few patents represented (6.9 per 100,000) and low concentrations of high-tech workers and businesses (1.5% and 2.2%). The bottom five states are regionally concentrated, with Nebraska, Missouri, Arkansas and Oklahoma rounding out the list.
- Innovation in New Places: Some states broke through for certain metrics. No. 26 Wyoming, for instance, saw a 2,544% surge in venture capital activity in the past five years – though it’s gotten very little federal support relative to its population.
In No. 1 Massachusetts, the federal government has allocated the equivalent of $1,223 per capita for tech innovation, nearly double the next-highest state (New Hampshire, with $682). Massachusetts was also boosted by its strong tech concentration for both workers and firms (9.5% of firms and 6.7% of workers are in high-tech fields). And in 2020, Massachusetts reported a whopping 125.6 patents per 100,000 population.
It’s only slightly beaten out by No. 2 California, where the patent rate reached 127.8. California also boasts of a 55.2% startup survival rate over five years, making it one of the best states for new business longevity.
Meanwhile, No. 3 Maryland and No. 4 Virginia have some of the highest per-capita rates of government funding for tech innovation ($535 and $460, respectively), almost certainly due to the plethora of government contractors in the capital region. In Virginia, about 1 in 10 employees work in the high-tech sector – the highest rate in the country.
Colorado ranked 5th, driven by relatively high scores across the board. Notably, the state has received $2.96 billion through the federal SBIR and STTR programs since 2015 – the equivalent of $512 per capita for small businesses’ tech innovation.
Mississippi landed at the bottom of the list, with just 2.2% of its firms and 1.5% of workers in high-tech fields – the lowest rates in the U.S. Further, the state has seen no growth in venture capital activity in the past five years and had just 6.9 patents per 100,000 residents in 2020, speaking to the difficult environment for tech innovators.
The rest of the bottom five states – Nebraska, Missouri, Arkansas and Oklahoma – tend to also have low concentrations of tech workers and firms. Startups are more likely to fail in No. 49 Missouri than anywhere else, with just 39.5% lasting at least five years. Ranking at 46th overall, Maine is the only Northeastern state to crack the bottom 10 due to its below-average share of workers and companies in high-tech.
There are some bright spots, however. No. 48 Arkansas has seen a 526% uptick in venture capital activity in recent years, a much higher growth rate than most states. And startups are more likely to survive in South Dakota, West Virginia and Mississippi – which all ranked among the bottom 10 – meaning entrepreneurs in other industries may be more successful.
With the surge of AI, the democratization of technology, corporate relocation and the rise of remote work, new hot spots for technology are emerging. and the growing role of non-tech professionals on the horizon, certain states are more compelling for tech companies than others – and indeed, they may want to focus on regional hubs in Massachusetts, California and the D.C. capital area.
Yet even the best states have some weaknesses – and some of the lowest-ranked states might offer other perks for tech companies looking to set up shop or expand. Overall, the analysis underscores the importance of innovation and adaptability as tech workers, employers and funders alike consider where to target their resources.
We used the most recent data for six metrics to determine the best and worst states for tech companies. We used a Z-score distribution to scale each metric relative to the mean across all 50 states and Washington, D.C., and capped outliers at 2. A state’s overall ranking was calculated using its average Z-score across the six metrics. Here’s a closer look at the metrics we used:
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