Why Emerging Tech Hubs in the U.S. Will Lead to a More Diverse, Stronger Economy
Authored by Seamon Chan, Co-Founder and Managing Partner at Palm Drive Capital
For decades, the United States has been the clear leader in the global tech venture ecosystem. While established domestic hubs like the San Francisco Bay Area are continuing to play key roles in cementing this dominance, so too are some of the country’s smaller cities.
Yet, by no means are contributions from these smaller cities meager. Even now, the venture returns in these emerging hubs are gaining strength, with mega exits already taking place in some of them. This is because these emerging hubs are growing strong ecosystems in their own right; talent distribution between the cities is getting more even, skilled local talent pools are growing, and more companies have decided to plant themselves there (and with success). The only thing they’re missing, when compared to more established hubs, is more investors.
To realize the best of what U.S. tech ventures can offer, it’s time for investors to look beyond the confines of the U.S.’ established hubs and place their bets in more of its growing ones. Not only would they open opportunities for them to get in on the ground floor of these nascent ecosystems, but they would also sustainably help build up the overall strength of the country’s tech economy holistically as the U.S.’s tech ecosystem leadership would be factored by activities from more corners of the country, rather than from just a select few.
Less market saturation
When looking at the U.S. as a tech venture hub, investors – both local and international – really tend to associate it with already thriving ecosystems such as in the San Francisco Bay Area. Hence, it’s been of little surprise that these hubs have drawn big tech companies in basing themselves there and their successes, in turn, have attracted other bussing tech ventures and their investors. However, one drawback that newer tech venture players now face in these premier hubs is market oversaturation.
For investors, this oversaturation is making it harder for them to clearly differentiate themselves. In these bustling ecosystems, everyone wants to get in on the action, but investors who still wish to stake their claims there must now balance their appeal to tech startups in a modern environment where entrepreneurial education resources are more widely available for startups to use. With resources becoming, in a sense, more ‘decentralized,’ investors and startups may consider diverting their interest to less-saturated hubs.
However, it’s also important to choose which emerging hub to enter. Many of them are sprouting around the country, but the ones primed for success are those which already have strong tech economy fundamentals but require a boost to their investment ecosystems. One such place is Baltimore, Maryland, where the city’s relatively lower costs have been attracting more tech entrepreneurs and workers. Yet, even with a growing tech community and more accelerators in the city, the scaling of ventures in the city has not kept pace, largely due to the nascent investment community there. This presents sort of a blue ocean strategy primer for investors looking to move away from already saturated ecosystems and more clearly distinguish themselves in newer ones.
More affordable living costs
While major tech hubs still carry a sense of glitz and glam, they come with exorbitant costs. For instance, the Bay Area is getting more expensive to live in every year, due in no small part to its proximity to leading tech companies. Even during the pandemic-stricken economy, these livings costs are becoming more untenable for tech talents, many of whom are choosing to move away from such hubs and into emerging ones. Yet, it’s not just the workers doing this; it’s also the companies.
One city benefiting from this exodus is Miami, Florida. The Magic City is now seeing one of the U.S.’ highest growths in migration of software and IT workers, due largely to the lower living costs and graduates seeing it as a good platform to jumpstart their careers, especially during the pandemic where keeping costs low was an especially pertinent factor. Prominent tech industry figures and venture capitalists are also moving there to be closer to the burgeoning ecosystem action.
With a bigger talent pool and more investors looking at the city, Miami is set to improve upon the $1 billion in venture funding it was estimated to receive last year. This shows that even while COVID-19 dampened venture activities in bigger hubs, we’re seeing more positive action taking place in the U.S.’s up-and-coming tech hubs.
Lower costs of funding
In more mature ecosystems, especially in the San Francisco Bay Area, deal sizes and valuations have been increasing every year, making it more expensive for investors to fund ventures. This has pushed more of them, as well as tech companies, to move away from them. With the emergence of other thriving hubs around the country, they now have more choice in not only choosing their investment or incorporation destinations, but also tap into more investment opportunities.
Austin, Texas is a city experiencing a tech ecosystem boom while still managing to keep funding costs relatively low. More companies have been relocating from major hubs to the Texan city as tech ecosystem stakeholders see that they can still benefit from the city’s long-held, tech-forward mindset (established by tech giants such as IBM and Dell) and robust business incorporation fundamentals, while also being able to support innovative ventures with relatively smaller funding sizes.
With emerging startups establishing their headquarters in Austin, the city’s tech ecosystem future is on the rise. To lure more of such companies in, the city’s authorities are now also offering greater business incorporation incentives, namely in the forms of property and payroll tax reimbursements.
Fostering broader-based growth of the U.S.’ tech economy
As it emerges carefully from COVID-19, the U.S. is likely to maintain its leadership within the global tech economy. However, now in this new normal, the difference is that the ecosystems powering that leadership are being diversified between more emerging hubs across the country.
While this presents more diverse opportunities for companies, workers and investors, the added benefit for the U.S. as a whole is expanding the geographical diversity of tech ecosystem development. This will help only help promote broader-based growth across the country, enabling more industry participants to benefit from the overall growth of today’s more tech-driven economy.
Today, the tech economy has been marked as a key engine of growth. With more American cities tapping into this ecosystem, stronger tech venture activities will not only boost the economies of the cities themselves, but also the regions they’re in to turn them into growth centers.
About the author
Seamon is Managing Partner at Palm Drive Capital, a New York-based venture capital and growth equity firm he co-founded with fellow Stanford University alumni Hendrick Lee. He brings more than a decade’s worth of experience in entrepreneurship and operations and boasts an impressive track record in technology investments. His various investment and operational roles in the US and Asia prepared him to launch and lead his own VC firm.
In his role at Palm Drive Capital, Seamon is responsible for new investments, growing the company’s network of stakeholders as well as facilitating cross border collaboration between startups and investors between the US and Asia.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.