Oct 24, 2019

The 11 Best Untapped Cities for Startups in 2020

Source: Fundera

Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

The location of your startup could have a big impact on its growth and eventual success. The interest of investors in your startup, the availability of talent in the local labor pool, and an area’s cost of living can all work in a company’s favor or against it. 

Startup culture is centered in a few regions in the United States. The Silicon Valley Bay Area accounts for 45% of total venture capital investment in the U.S. When you add in other startup hubs, such as New York, Boston, and Seattle, it covers nearly three-quarters of the country’s venture capital investment. Many experts have called out so-called “second tier” startup cities, such as Portland and Austin, but even those regions are now becoming costly and saturated for would-be entrepreneurs.

In order to discover the best untapped cities for startups, Fundera gathered data on 50 mid-sized cities with a population under 500,000 residents. We measured each city’s access to a talented labor pool, average labor cost, office space cost, average cost of living, and proximity to a larger startup ecosystem. Our findings indicate that cities with high potential for startup success exist across the country. 

Here are some of our key takeaways:

  • The top three cities—Madison, Plano, and St. Paul—earned high points for a combination of access to a well educated local labor pool and a relatively modest cost of doing business.
  • A city with excellent feeder universities was likely to have a well-educated population and thus rank highly. Durham, St. Paul, and Madison all boast great nearby universities and an above-average concentration of residents with bachelor’s degrees.
  • A city with low office space rental rates was also more likely to rank highly, though some cities like Plano with higher rates still ranked well due to steady or slow annual growth in the cost of office space.
  • Several cities that are close to startup hubs, like Oakland with its proximity to San Francisco, didn’t make the top 11 because these are already too expensive.
  • Smaller cities in California—including Bakersfield and Chula Vista—were weighed down by a lower percentage of educated workers, and thus ranked toward the bottom.

Read on to see the complete ranking of the best untapped cities for startups. This information is useful for prospective and current founders, investors, and startups that are considering multiple locations. 

Best Untapped Cities for Startups in 2020

The 11 Best Untapped Cities for Startups in 2020

Most startup businesses, whether the founders intend to raise venture capital or not, typically start out on a shoestring budget. As a result, the magic recipe for a startup-friendly city is one that has access to a relatively inexpensive, but high quality, talent pool from which to recruit workers. 

At the same time, the cost for the founding team to live in the city and rent office space there should also be reasonably affordable. Although the number of venture capital deals in a region was only a small factor in our analysis, venture capitalists like to invest locally, and a critical mass of startups that already exist in an area can be a positive pull-factor for investors and other startups. 

Accounting for all of these variables, the following 11 cities are the best untapped startup destinations:

1. Madison, WI

Best Untapped Cities for Startups

The beautiful city of Madison, Wisconsin is number one on our list, due to an excellent balance of startup-friendly factors. Madison boasts a well-educated population, with 57% having a bachelor’s degree or higher. This city also has the highest concentration of millennials compared to any other city in the country, making it a particularly great option for young startup founders and their teams. 

A young, well-educated talent pool is coupled here with low office rental prices that are falling year-over-year. The cost of living isn’t outrageously high with a $12.44 living wage cost, and the average median income of $64,101 is just a hair above the nationwide average. At just 73 VC deals over the last three years, Madison may best represent what it means for a city to be untapped. The startup scene here is small, but there is potential for immense growth.

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