4 ms·

Which States Have the Best Startup Environments?

38 points by sachinag 17y ago

kevinpet 17y ago
I suspect a lot of this is due to California's employee-friendly laws that prevent non-compete agreements and prevent "we own every thought you have" intellectual property assignments. As a libertarian I naturally lean towards freedom of contract, but some things are properly inalienable. Are these common in other states?
- spamizbad 17y ago
  Sort-of, although states with similar laws tend to be more ambiguous, which results in messy legal battles where the employees are often outgunned by corporate lawyers. California's is fairly clear and has been tested in court on several occasions.
- lionhearted 17y ago
  > I suspect a lot of this is due to California's employee-friendly laws that prevent non-compete agreements and prevent "we own every thought you have" intellectual property assignments. Nah - Funding comes, by definition, from people with money. The coasts are much wealthier than inlands. Hence, more funding. Founders often agree to really draconian terms - they're not going to Cali for employee protection laws. There's currently lots of technology and funding in Silicon Valley, so founders and investors both go there. It's cyclical - if there was as good of an environment with less regulation and laws, it'd attract even more. Actually, there are examples of that: recent example #1 is the crazy-fast ascent of Ireland into a European key business center, and Dubai built from desert nothing wasteland into grandiose world finance center is recent example #2. Edit: Also, no one actually enforces noncomps unless things end in a nasty way. Then it's just a tiny bit of leverage if things already went south. If you don't go to a director competitor in a hostile way during the noncomp period, employers don't care. And if the duration or geography isn't very concise, they're invalid in court. Non-comp not such a big deal. Intellectual property assignment is serious though.
quellhorst 17y ago
This isn't useful... The first graph has Iowa above Texas. The founders of the company make a much bigger difference than the state of founding.
- spamizbad 17y ago
  It's per-capita funding, so why would state size matter? There's actually been considerable startup activity in Des Moines and Iowa City, so I'm not surprised to see Iowa passing Texas on a per-capita basis.
  - quellhorst 17y ago
    The title is "Which States Have the Best Startup Environments." The metrics used in the article are not the best.
martey 17y ago
Does anyone know of a state-by-state comparison of the laws and regulations around forming a business in each state (registration fees, etc.)? This seems like it would be a useful metric, if one was choosing to relocate based on business environment.
- hooande 17y ago
  Most funded companies are incorporated in Delaware. Many VCs insist on it. Delaware has positioned itself as "business friendly" with low corporate registration fees and a legal system that favors business interests. YC recommends that all of their founders incorporate in Delware.
  - sachinag 17y ago
    I've told the story before: when I was a VC, a deal almost fell apart because the California Secretary of State rejected the new articles of incorporation after the funding. They didn't like the voting structure for some bizarre reason. Incorporate in Delaware - it's the safest, because they 1) give more leeway to management and 2) the Chancery court there has a ton of caselaw so there are very, very few surprises.
miked 17y ago
Here's some data on the best and worst tax climates, by state: http://taxprof.typepad.com/taxprof_blog/2009/09/2010-state.html http://taxprof.typepad.com/taxprof_blog/2009/09/2010-state.h...
- meterplech 17y ago
  It is interesting to compare the tax climates to the $s of funding. California, Minnesota and Iowa manage to have successful startup per capita despite these harsh laws. And, Wyoming is dead last in dollars for funding, but second in tax environments. Clearly Wyoming has a sparsely populated state, but per capita was supposed to account for that. As a native Marylander, I am a bit intrigued by how the recent tax changes targeted at businesses will effect this sort of data. It is already seemingly hurting Maryland in comparison with other states (1 year avg < 3 yrs < 5 yrs), but other factors may come to play. Perhaps a great indicator is population density, or more specifically educated peoples density.
  - mojonixon 17y ago
    Wyoming has oil, which probably pushes out investment in other industries (why invest in a startup when you can invest in an oil well?). It may have a localized version of the Dutch disease. http://en.wikipedia.org/wiki/Dutch_disease http://en.wikipedia.org/wiki/Dutch_disease
chimariko 17y ago
This is interesting analysis. However I think the most important factors of success of a start-up are 1) what service to provide; 2) team to run the business. Friendly funding environment is a plus, but it is not a sine qua non for a young company.
- sachinag 17y ago
  I don't think anyone disagrees with that. The point of the analysis is to answer the question "if you're a team that has identified a promising market and looking to build a product, where should you be?"
  - anamax 17y ago
    That's a meaningless question because it ignores important factors that often swamp the generic data. For example, the product and market matters. If you're starting a fossil-fuels related company, you're probably better off in Wyoming than on Sand Hill Road.
fjabre 17y ago
Interesting... I'm surprised by Massachusetts being even slightly higher than California per capita but possibly has to do with population size I guess. At any rate, good to know that 'number 2' may not be so far behind 'number 1' as some would have you believe... Thanks for this great post!
- Goladus 17y ago
  Yeah I think that's an artifact of the "per-capita by State" metric being used, which really isn't all that useful. If you were to combine all of New England with New York and then compare, California would come out ahead. (Or just compare Northern CA with MA)
  - sachinag 17y ago
    Don't forget that this data excludes angels. My feeling is that CA companies tend to get way more seed/startup money from angels than do MA companies, where firms like Flybridge, Atlas, etc. do early stage investing.
te_platt 17y ago
A lot of comments have pointed out that there are problems with the metric used in the article. Still, the differences aren't measured aren't off by 20 or 30 percent. Some states have 10 times the amount of venture money as others. Clearly there are factors that make some places better (in some absolute sense) than others for doing a startup. I think it would be interesting to see the same data on a city level.
mdg 17y ago
In the 3-Year Average graph, South Dakota is below $0.00, is that possible?

38 points by sachinag 17y ago

I suspect a lot of this is due to California's employee-friendly laws that prevent non-compete agreements and prevent "we own every thought you have" intellectual property assignments. As a libertarian I naturally lean towards freedom of contract, but some things are properly inalienable. Are these common in other states?

spamizbad 17y ago
Sort-of, although states with similar laws tend to be more ambiguous, which results in messy legal battles where the employees are often outgunned by corporate lawyers. California's is fairly clear and has been tested in court on several occasions.
lionhearted 17y ago
> I suspect a lot of this is due to California's employee-friendly laws that prevent non-compete agreements and prevent "we own every thought you have" intellectual property assignments. Nah - Funding comes, by definition, from people with money. The coasts are much wealthier than inlands. Hence, more funding. Founders often agree to really draconian terms - they're not going to Cali for employee protection laws. There's currently lots of technology and funding in Silicon Valley, so founders and investors both go there. It's cyclical - if there was as good of an environment with less regulation and laws, it'd attract even more. Actually, there are examples of that: recent example #1 is the crazy-fast ascent of Ireland into a European key business center, and Dubai built from desert nothing wasteland into grandiose world finance center is recent example #2. Edit: Also, no one actually enforces noncomps unless things end in a nasty way. Then it's just a tiny bit of leverage if things already went south. If you don't go to a director competitor in a hostile way during the noncomp period, employers don't care. And if the duration or geography isn't very concise, they're invalid in court. Non-comp not such a big deal. Intellectual property assignment is serious though.

quellhorst 17y ago

This isn't useful... The first graph has Iowa above Texas. The founders of the company make a much bigger difference than the state of founding.

spamizbad 17y ago
It's per-capita funding, so why would state size matter? There's actually been considerable startup activity in Des Moines and Iowa City, so I'm not surprised to see Iowa passing Texas on a per-capita basis.
- quellhorst 17y ago
  The title is "Which States Have the Best Startup Environments." The metrics used in the article are not the best.

martey 17y ago

Does anyone know of a state-by-state comparison of the laws and regulations around forming a business in each state (registration fees, etc.)? This seems like it would be a useful metric, if one was choosing to relocate based on business environment.

hooande 17y ago
Most funded companies are incorporated in Delaware. Many VCs insist on it. Delaware has positioned itself as "business friendly" with low corporate registration fees and a legal system that favors business interests. YC recommends that all of their founders incorporate in Delware.
- sachinag 17y ago
  I've told the story before: when I was a VC, a deal almost fell apart because the California Secretary of State rejected the new articles of incorporation after the funding. They didn't like the voting structure for some bizarre reason. Incorporate in Delaware - it's the safest, because they 1) give more leeway to management and 2) the Chancery court there has a ton of caselaw so there are very, very few surprises.

miked 17y ago

Here's some data on the best and worst tax climates, by state: http://taxprof.typepad.com/taxprof_blog/2009/09/2010-state.html http://taxprof.typepad.com/taxprof_blog/2009/09/2010-state.h...

meterplech 17y ago
It is interesting to compare the tax climates to the $s of funding. California, Minnesota and Iowa manage to have successful startup per capita despite these harsh laws. And, Wyoming is dead last in dollars for funding, but second in tax environments. Clearly Wyoming has a sparsely populated state, but per capita was supposed to account for that. As a native Marylander, I am a bit intrigued by how the recent tax changes targeted at businesses will effect this sort of data. It is already seemingly hurting Maryland in comparison with other states (1 year avg < 3 yrs < 5 yrs), but other factors may come to play. Perhaps a great indicator is population density, or more specifically educated peoples density.
- mojonixon 17y ago
  Wyoming has oil, which probably pushes out investment in other industries (why invest in a startup when you can invest in an oil well?). It may have a localized version of the Dutch disease. http://en.wikipedia.org/wiki/Dutch_disease http://en.wikipedia.org/wiki/Dutch_disease

chimariko 17y ago

This is interesting analysis. However I think the most important factors of success of a start-up are 1) what service to provide; 2) team to run the business. Friendly funding environment is a plus, but it is not a sine qua non for a young company.

sachinag 17y ago
I don't think anyone disagrees with that. The point of the analysis is to answer the question "if you're a team that has identified a promising market and looking to build a product, where should you be?"
- anamax 17y ago
  That's a meaningless question because it ignores important factors that often swamp the generic data. For example, the product and market matters. If you're starting a fossil-fuels related company, you're probably better off in Wyoming than on Sand Hill Road.

fjabre 17y ago

Interesting... I'm surprised by Massachusetts being even slightly higher than California per capita but possibly has to do with population size I guess. At any rate, good to know that 'number 2' may not be so far behind 'number 1' as some would have you believe... Thanks for this great post!

Goladus 17y ago
Yeah I think that's an artifact of the "per-capita by State" metric being used, which really isn't all that useful. If you were to combine all of New England with New York and then compare, California would come out ahead. (Or just compare Northern CA with MA)
- sachinag 17y ago
  Don't forget that this data excludes angels. My feeling is that CA companies tend to get way more seed/startup money from angels than do MA companies, where firms like Flybridge, Atlas, etc. do early stage investing.

te_platt 17y ago

A lot of comments have pointed out that there are problems with the metric used in the article. Still, the differences aren't measured aren't off by 20 or 30 percent. Some states have 10 times the amount of venture money as others. Clearly there are factors that make some places better (in some absolute sense) than others for doing a startup. I think it would be interesting to see the same data on a city level.

mdg 17y ago

In the 3-Year Average graph, South Dakota is below $0.00, is that possible?