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Is California Losing Start-ups to Other States?

A new study suggests the California dream may be starting to fade: The number of start-ups raising money in the state has been on the decline for years.
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Although New York, Texas, and other states have developed their own thriving start-up hubs, California still looms large--at least in the mind of many entrepreneurs--as the quintessential state for building new ventures. But a recent report suggests that California might be losing its edge.

Robert Anderson, associate professor of law at Pepperdine University, compiled data on start-ups filing Form Ds with the SEC between 2002 and 2012 and found that the number of companies filing these pre-IPO forms in California has been steadily declining and increasing other parts of the country. Start-ups file a Form D when they raise money from private investors. Anderson describes companies that file Form Ds as “the Googles and Facebooks of the future,” and he says, according to his data, they likely will hail from Silicon Alley rather than Silicon Valley in the future.

Anderson used over 120,000 Form D filings from start-ups to produce a geographical chart:

SA Plot

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“The plot reveals an unmistakable bleed of start-up businesses out of California over the last decade,” Anderson writes. “As recently as 2002 California was the clear leader among all states, with about as many businesses as in the next four states combined (New York, Texas, Massachusetts, and Florida), and more than twice as many as its nearest competitor--New York. But by 2012 New York by itself has nearly caught California, and New York and Texas together have a far higher share than California.”

This may seem surprising, but New York City--thanks in large part Mayor Michael Bloomberg’s initiatives--has been not-so-quietly gunning to replace Silicon Valley as America's start-up hub for years. To be sure, Form D filings aren’t the only way to measure a state's start-up activity but they do indicate where companies are raising funds in private markets and thus offer a geographical glimpse at where the money may be for start-ups in future, Anderson says.

If this plot is any indication, the California dream might be starting to fade.

Last updated: Sep 26, 2012




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