The 5 Best States for Start-Ups / Starting a Business / Last Modified: February 22, 2017

Start-ups and small businesses are the lifeblood of America.  In 2009, there were no fewer than 50 million businesses with under 20...

Start-ups and small businesses are the lifeblood of America.  In 2009, there were no fewer than 50 million businesses with under 20 employees, providing over 189,500,000 jobs, and paying out a mind-boggling $6 billion in payroll.  In 2011, according to PriceWaterhouseCoopers, nearly $3 billion in venture capital was seeded across the United States.

But what states are the best for entrepreneurs?  The answers might take you by surprise.

1. California

Total Venture Capital in 2011: $14.5 Billion

Number of Deals: 1477

California may be facing some rough times economically in some sectors, but in terms of sheer volume, if you want to be a start-up, the Golden State is a great place to do it.  Part of this is just the fact that some of the Internet companies that began the decade as tiny have become behemoths: imagine being in on the ground floor of Facebook, with its potential $100 billion valuation.  True, not every bet in Silicon Valley pays off.  In fact, most of them don't.  But those that do make their investors billionaires turn right around and sink that money into California start-ups.

That's reflected in the sheer number of venture capital deals: California is the only state to have four figures in 2011.  In fact, California had more venture capital deals than the rest of our top five combined.  So if you want to build your start-up, it's as true now as it ever was: go west.

2. Massachusetts

Total Venture Capital in 2011: $2.9 Billion

Number of Deals: 383

Coming second is the Bay State, and for good reason: it has a long, long history of technical innovation.  Harvard, MIT, Boston University, and Boston College, all highly respected institutes of learning, make their home in the Boston area, which makes it both a hotbed of innovation with tiny companies started up by ambitious science graduates commercializing their research, and huge corporations coming to take advantage of the talent being cranked out every year.

Massachusetts has a long, long history of success: Polaroid, Raytheon, Draper Laboratories, ThermoFisher, Akamai, and legions of others got their start or took off in the Bay State.  Currently, Massachusetts is witnessing a boom in robotics, biotech, pharmaceuticals and industrial software, with companies like iRobot and Genzyme employing thousands in the area and turning out everything from the latest disease cures to cute robot vacuums.

In short, Massachusetts may not have quite the venture capital of California, but if you don't want to move across the country, consider Massachusetts your next stop.  Or, if you want sun but no beaches...

3. New Mexico

Total Venture Capital: $2.3 Billion

Number of Deals: 309

Hot on Massachusetts' heels in 2011 is New Mexico.  Which may sound odd until you stop to remember its unique history.

New Mexico is host to a number of esteemed government laboratories: White Sands for missile testing and satellite tracking, and Los Alamos and Sandia National Laboratories, two of three locations where the government studies nuclear physics.  In short, New Mexico is one of the key states in the aerospace industry, especially for government contracts, and that makes it a thriving ground for physicists and other scientists in the private sector.  New Mexico has a lot of brainpower in its borders.

It's not shy of other start-ups, either.  For example, the Santa Fe Business Incubator, a non-profit, is thriving, housing everything from a boutique distillery to pharmaceutical companies to nanotechnology.  Helping is the relatively low rents and the government businesses, allowing the state to thrive even in tough times.

Another surprising state is...

4. Tennessee

Total Venture Capital: $1.4 Billion

Number of Deals: 153

What makes Tennessee the venture capital jewel of the Southwest?  Pretty simple, really: its strong focus on the medical industry and key role in the music industry.

Tennessee was where the revolution in healthcare began; the first major health management organizations got started in Tennessee, and that's reflected in its strong business base of medical start-ups, focusing on everything from surgical technology to pharmaceuticals.  The second, and just as important, leg is Nashville; country music is one of the best-selling, and thus most important, music genres in America, selling 42 million albums in the US alone.

This combines to create a diverse range of start-ups and small businesses, from musical instrument makers and online music streaming companies to medical nanotechnology companies.  Even car companies have taken notice: increasingly, the car you drive comes from the Volunteer State.

And, last but not least in our top five:

5. Illinois

Total Venture Capital: $683 million

Number of Deals: 89

Illinois has a long industrial history, but what drives it as a start-up hub is its thriving online and biotech industries.  Anchored by respected science schools such as the University of Chicago, the Windy City alone has more than 700 startups.  In fact, many of the hot new Internet startups actually have their roots in Chicago.  Belly, a startup that offers loyalty cards services to businesses large and small, is just one rising star.

Helping considerably?  The state's strong financial sector, which both generates money and allows investors to offer their funds to smaller companies as a chance to get in on the ground floor.  Multiple venture capital firms and incubators mean many start-ups get a stronger chance in Illinois than almost anywhere else in the country.

One thing to keep in mind, though, is that just because a start-up didn't get venture capital doesn't mean it's not successful in its own right.  Many, many giant companies started with one person having a dream, and putting all they had behind it.  In the end, the best start-ups don't succeed because of where they are, although location can help.  They succeed because of the people and ideas behind them.


We found the data in our opening paragraph courtesy of the United States Census Statistics of U.S. Businesses.  The rest of the information came from PriceWaterhouseCoopers annual venture capital MoneyTree report, the only state-by-state breakdown of venture capital publicly released.



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